Building a modern capital market with Chinese characteristics, how to combine the valuation of technology stocks with the Chinese perspective and highlight Chinese practices is a frontier issue that needs to be explored. This article focuses on discussing the valuation system of technology stocks, overseas transformation and development experiences, cross-border comparisons of the valuation of the Chinese technology industry chain, and investment directions, in comparison with previous series of studies.Investment Highlights:Exploring and developing a capital market with Chinese characteristics, improving the valuation system of the technology industry is a key strategy. In the past long-term domestic and overseas technology stock investment practices, the key to the valuation of technology stocks depends on industry expectations and economies of scale, that is, whether innovation can bring about an increase in new technology penetration rate and rapid performance growth. Under the construction of a modern capital market with Chinese characteristics, how to combine the valuation system of technology stocks with the Chinese perspective and highlight Chinese practices is a frontier issue that needs to be explored. Considering the national conditions, we believe that the valuation of Chinese technology stocks can be improved in three aspects:<ol><li>Encouraging the development of emerging industries and future industries, nurturing and strengthening leading technology companies, creating competitive technology products and sustainable growth business models;</li><li>Accelerating industry consolidation and improving the competitive landscape through survival of the fittest. Encouraging mergers and acquisitions to strengthen core businesses, promoting integration of the industry chain upstream and downstream, leveraging the synergies of the industry chain, and reducing capital costs;</li><li>Increasing shareholder returns, improving dividend ratios and optimizing corporate governance, repurchasing and canceling stocks when necessary, focusing on shareholder returns while emphasizing development.</li></ol>Overseas experience of stock market valuation leapfrogging: The improvement of technology factor productivity is not only the key to economic transformation, but also the key driving force for the upward leapfrogging of stock market valuation. In recent years, China's economy has faced growth challenges under internal and external pressures. Looking at overseas experiences, China is not an exception, and the key to breaking the deadlock is to improve total factor productivity. In the 1970s and 1980s, with frequent geopolitical conflicts and major power games entering deep waters, the victory hand for breaking the deadlock was to increase total factor productivity. After thirty years of high growth, countries like Japan and Germany rapidly rebuilt their strong heavy chemical industries through investment-driven + industry subsidy models and directly confronted leading countries in the industry. The two oil crises directly led to a sharp rise in oil prices and a sharp decline in global demand. Japan and Germany both embarked on drastic economic transformations and coincidentally chose to promote technological progress. At that time, Japan and Germany developed high-tech industries with a national system, enhanced the global competitiveness of emerging industries, and used intelligent and energy-saving strategies to transform and upgrade traditional industries, eliminating old and surplus production capacity. In terms of stock market performance, the market valuation was under pressure in the early stages of transformation, and as the transformation model was established, the valuation began to expand, with technology leading stocks leading the way, often leading to a &#34;Davis double-click&#34; market.Cross-border comparison of the valuation of the technology industry chain: There is significant room for improvement in the market value weight of the technology sector, and some valuations already have advantages. Overall, there is a mismatch between the market value structure of A-shares and the economic reality of high-quality development, and there is still significant room for improvement in the market value weight of Chinese technology stocks. Compared with countries such as the United States, Japan, Germany, and South Korea, the current valuation of Chinese technology stocks is relatively low, which is related to the high operating leverage and significant profit volatility of Chinese technology stocks. However, with the continuous transformation towards innovation-driven development in recent years, the relative advantage of profitability has increased, making Chinese technology stocks cost-effective for investment, and more patient capital is expected to enter the market in the future. Specifically,<ol><li>The market value of A-share technology manufacturing and materials is higher, while TMT/automobiles/pharmaceuticals are relatively lower. The valuation of the manufacturing sector is lower, with the valuation of emerging industry chains falling in recent years and automobile valuation being relatively high.</li><li>With a higher net profit margin and leverage level, China's new quality power track has a relatively enhanced ROE advantage. Advantageous tracks include power equipment/machinery/pharmaceuticals/chemicals, with telecommunications/automobiles being weaker. Structurally, there is room for improvement in the net profit margins of electronics/defense/aerospace and automobiles, while the leverage in pharmaceuticals/machinery/software/automobile industries is relatively low, and financing support can be further strengthened.</li></ol>In China's practice of technology investment, three main themes are being laid out.<ol><li>Expanding orders in emerging industries: Focus on core technologies that are independently controllable, continuously enhance global industrial competitiveness, and recommend electronic semiconductors/telecommunications/military shipbuilding, etc.;</li><li>Expanding products in future industries: Accelerate the commercialization and commoditization of emerging technologies, layout opportunities for science and technology innovation investment themes: low-altitude economy/commercial aerospace/quantum technology/artificial intelligence;</li><li>Improving efficiency in traditional industries: Intelligent, green transformation upgrades and equipment renewal, emphasizing three clues of independent renewal, central enterprise leadership, and standard improvement, recommending machinery/commercial vehicles, etc.</li></ol>Risk Warning: Uncertainty in the landing progress of the technology manufacturing industry.Combined from Guotai Junan Securities.

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The market value of A-share technology manufacturing and materials is higher, while TMT/automobiles/pharmaceuticals are relatively lower. The valuation of the manufacturing sector is lower, with the valuation of emerging industry chains falling in recent years and automobile valuation being relatively high

- The article discusses the need to explore how to integrate the valuation of technology stocks with China's stance and highlight Chinese practices in building a modern capital market with Chinese characteristics.
- Key points include improving the valuation system for technology stocks, encouraging the development of emerging industries, industry consolidation, and enhancing shareholder returns to align with China's position in the global market.
- Comparisons with overseas experiences and the potential for increased investment in Chinese technology stocks due to their improving profitability and cost-effectiveness are highlighted, emphasizing sectors with growth potential like electronics, communications, and defense industries.

Valuation of China's technology industry chain: a comparison with international practices and China's implementation