Friday (August 28) saw the broader market consolidate with all major A-share indices closing in negative territory, as the Shanghai Composite Index fluctuated and the ChiNext Index showed relative weakness. Combined turnover across the Shanghai, Shenzhen, and Beijing exchanges fell slightly to over 2.1 trillion yuan compared with the prior session.
According to data from the U.S. National Oceanic and Atmospheric Administration, there is now a greater than 90% probability of a strong El Nino event emerging during the autumn and winter of this year. Markets anticipate that anomalous weather patterns such as drought and erratic precipitation will disrupt global food supply and push grain prices higher. Rising food prices typically stimulate demand for agricultural inputs like pesticides and fertilizers, potentially leading to a surge in agrochemical demand. The benchmark indices underlying the Chemical ETF Huabao (516020) and Agricultural & Fishery ETF Huabao (159275) have been showing renewed activity in recent sessions, and notably, both currently trade at valuations offering compelling risk-reward profiles.
Salesforce's better-than-expected earnings decisively shattered the "AI eats software" narrative, driving software stocks to lead market gains during morning trading. Cybersecurity names also posted standout performances, with Kylinsec hitting the 20% daily limit. The benchmark index for the Software Development ETF Huabao (159036), which tracks frontline AI application sectors, rose as much as 4% intraday, while the benchmark tracking the Hong Kong Internet ETF Huabao (513770), heavily weighted toward internet leaders, climbed 1.7% at its session peak.
Meanwhile, U.S. technology firms are grappling with the prospect of new tariff policies from the White House. According to informed sources, the Trump administration is considering a fresh round of comprehensive tariffs on semiconductors. Morgan Stanley's chief China economist Robin Xing noted that AI development in China and the U.S. is following fundamentally divergent models, with the balance subtly shifting. U.S. tech giants plan massive increases in computing power investment but face three hard constraints: insufficient electricity supply, local community resistance, and regulatory hurdles. Fourteen U.S. states have already imposed restrictions on computing infrastructure construction, and over $160 billion in computing projects were shelved last year.
The U.S. AI ecosystem is dominated by private capital, with high costs for large model usage, prompting enterprises to adopt a tiered approach to AI tools, shifting simple reasoning tasks to more cost-effective open-source models. China, by contrast, has built inclusive AI infrastructure, forging a unique competitive edge. First, its cost advantage is clear: token usage costs for domestic large models are only one-tenth of comparable U.S. models, making them well suited for SME and industrial deployment needs. Second, it employs a dual-track computing strategy, selectively importing high-end chips for frontier model training while promoting domestic AI chips across inference and application domains, with future national computing centers expected to scale and reduce hardware costs. Third, infrastructure deployment is faster, drawing on the low-cost, inclusive infrastructure approach of the mobile internet era to offer computing resources to domestic AI firms at affordable rates, compensating for single-chip performance gaps through systems integration and interconnected computing to build overall competitiveness.
On asset allocation, Xing believes AI investment has entered a "half-time breather," with market logic shifting from single-mindedly chasing upstream hardware like computing power and chips to two new major themes: first, AI application companies that leverage large models to cut costs, boost efficiency, and deliver revenue growth; and second, AI supply chain enablers (HALO assets), including energy, storage, and strategic raw materials, where demand keeps expanding and long-term pricing power is strong.
The Chemical Sector Defies the Downtrend
The chemical sector staged a counter-trend rally, with Haohua Chemical hitting the daily limit at the close, while Hangzhou Oxygen Plant Group, Tongkun Group, and Do-Fluoride New Materials gained over 5%, and Hualu-Hengsheng, Dongcai Technology, and Hengli Petrochemical also posted notable gains. As of August 28, these constituents carried index weights of 1.48%, 0.81%, 2.29%, 2.69%, 2.98%, 1.99%, and 2.53% respectively within the specialty chemicals index.
On the news front, the intense El Nino event continues to strengthen, with some institutions projecting a greater than 90% chance of a strong event this autumn and winter. Such events typically disrupt food supply through droughts in Southeast Asia, India, and Australia, along with abnormal precipitation in South America. China Securities notes that while global grain prices remain at relatively low levels and inventories provide some buffer, weather risks are accumulating rapidly. If production shortfalls in major growing regions materialize over the coming months, supply-demand dynamics could shift from "ample inventories" to "production cuts and destocking," making upward price flexibility in grains a key focus. Higher grain prices are also expected to improve global farming profitability and farmer input willingness, and through replanting, expansion, and higher per-unit input, further boost demand for pesticides, fertilizers, and other agrochemicals, benefiting the broader agricultural chemical cycle.
On valuations, data as of yesterday's close (August 27) shows the benchmark specialty chemicals index had a price-to-book ratio of 2.54 times, sitting at the 49.02nd percentile of its 10-year range (source: Wind), indicating a relatively reasonable level with solid medium-to-long-term allocation value. The index has delivered annual returns over the past five full years of: 41.09% in 2025, -3.83% in 2024, -23.17% in 2023, -26.89% in 2022, and 15.72% in 2021. Its corresponding volatility figures were 20.43%, 30.05%, 15.07%, 24.99%, and 32.02% respectively.
Looking ahead, China Securities holds that long-term, leading chemical firms have already demonstrated excellent earnings resilience at the cycle bottom and offer substantial value. However, there is short-term risk of sequential earnings declines due to a high Q2 base and weak Q3 restocking. The firm recommends focusing on sectors and stocks expected to see further earnings upside in Q3, including high-demand overseas refined oil products, fluorochemical refrigerants with both volume and price increases, potash fertilizers benefiting from new capacity expansion, and tire makers with significantly lower input costs.
For investors seeking to capture the chemical sector's rebound, the Chemical ETF Huabao (516020) offers an efficient vehicle. It tracks the CSI Specialty Chemicals Industry Theme Index, with constituent stocks spanning popular themes such as AI computing power, anti-involution, robotics, and new energy. Off-exchange investors can also access the sector via the Chemical ETF feeder funds (Class A 012537, Class C 012538).
Cybersecurity and AI Applications Rally Together
Strong earnings from U.S. tech giants ignited confidence in AI applications, and with cybersecurity names showing vigor, the software development sector staged a broad recovery. Kylinsec and Digiwin Software both hit the 20% daily limit, while Topssec, Shuiyuan Tech, and Joyy Software rose 10% to their daily caps. Foxit Software and 360 Security touched intraday highs before closing up 7.06% and 6.65% respectively. The benchmark index for the Software Development ETF Huabao (159036), which covers 107 listed software companies, climbed over 3% in morning trade before closing up 0.69%.
On the news front, better-than-expected earnings from international heavyweights like Salesforce and CrowdStrike significantly eased market concerns about AI disrupting traditional software, lifting global AI software development shares and opening a valuation repair window for A-share software developers. Within AI application sub-sectors, AI-powered office tools look set to become the next definitive direction for token consumption after code generation. Overseas, Anthropic has rolled out Claude Cowork, while OpenAI is integrating Codex with ChatGPT to expand into office scenarios. Domestically, Tencent, Alibaba, DeepSeek, and other leading vendors are advancing AI agent products like WorkBuddy. The office segment holds vast potential, promising to bring AI to the mass market and become a new wave of B-side platform products and traffic gateways.
China Securities posits that AI industry investment logic is shifting from model capability and capital expenditure races toward commercialization validation. Domestic model gaps in coding and agent tasks are rapidly narrowing, and the application flywheel closed-loop is performing better than expected. The firm recommends focusing on B-side AI application vendors with strong capabilities in scenarios, data, and enterprise delivery.
Meanwhile, cybersecurity has drawn increased market attention amid the rapid development of AI agents. Strong growth figures from U.S. cybersecurity giant CrowdStrike further confirm the "AI threats force security spending" logic. On August 27, OpenAI published an open letter titled "A Call for Collective Action on Cyber Defense," joined by more than a hundred organizations including Anthropic, AWS, Google, and Microsoft, jointly warning that the window for strengthening cyber defense is limited and urging all organizations to elevate cyber defense to a top leadership priority. Zheshang Securities believes AI will not completely replace cybersecurity vendors; rather, it amplifies the essential need for security protection, and leading companies with full-stack AI security capabilities continue to widen their moats. Overseas AI leaders are accelerating development of specialized tools and models for cybersecurity scenarios, while automated AI-powered cyberattacks are iterating faster, forcing government and enterprise organizations to sustain or increase security procurement budgets. Domestic cybersecurity firms with AI security products and full-stack protection capabilities stand to benefit from both the incremental AI security demand and the domestic substitution wave.
On valuations, as of August 27, the software development index had a trailing twelve-month P/E ratio of 164.78 times, below roughly 78% of its historical levels since listing, highlighting notable valuation appeal and a solid margin of safety.
Where Hardware Ends, Software Spring BeginsAcross historical tech revolutions, profits have consistently flowed from hardware to applications. Earlier this year, the "large models eat software" narrative weighed on AI application valuations, leaving the software development sector a "low-water mark" within the AI value chain, with clear safety margins and cost-effectiveness. The software industry is currently in an upward cycle, but given uncertainty about which specific sub-sector or stock will outperform, the Software Development ETF Huabao (159036) offers comprehensive exposure across the entire industry, covering 107 constituent stocks across AI + finance, AI + healthcare, AI + office, AI + education, AI + information security, and AI + government affairs. Driven by AI empowerment and domestic substitution initiatives, the software development sector is poised to rise. As of end-July, the benchmark software development index allocated weights of 47.88% to AI applications, 42.77% to cloud computing, 42.43% to information technology innovation industries, 32.73% to fintech, 16.36% to cybersecurity, and 14.44% to HarmonyOS ecosystem concepts.
Hong Kong Internet Sector Gains Strength Post-Earnings
While hard tech saw a late-day pullback, AI applications performed actively and leading internet names mostly gained, with the CSI Hong Kong Stock Connect Internet Index, heavily weighted toward internet leaders, closing up 0.6%. Tencent Holdings and Xiaomi Group-W both rose over 1%. During the session, Tencent's Hunyuan released and open-sourced its next-generation large language model, Hy4 preview, featuring significant expansions in model size, context length, and data scale, securing its place in the top tier of open-source models. Just last month, Tencent released and open-sourced the Hunyuan Hy3 official model, and WorkBuddy's monthly active users have already surpassed 20 million, with base model iteration and commercialization progress accelerating notably. Xiaomi also unveiled three self-developed chips at once—the Xuanjie O3 (AI flagship SoC), the Xuanjie O100 (high-bandwidth AI accelerator), and the Xuanjie D100 (smart driving high-compute AI chip)—breaking past the boundary of single smartphone chips to build an AI computing foundation spanning its "person, car, home" ecosystem.
Elsewhere in the market, mid-year report disclosures continued to validate AI application commercialization, lifting sector sentiment. Meitu rose over 7% following results, posting adjusted net profit attributable to shareholders of 5.2 billion yuan in H1, up 39.5% year-on-year, with AI productivity applications reaching approximately 620 million yuan in annual recurring revenue (ARR). Bilibili-W gained 6% after earnings, with Q2 adjusted net profit rising 25% year-on-year, as advertising became a revenue growth engine and AI advertising revenue surged over 100% year-on-year. Meituan-W was set to report earnings after market close, with multiple institutions noting that the pace of food delivery subsidy cuts is exceeding expectations, potentially confirming a competitive inflection point for Meituan and driving accelerated earnings recovery. SaaS stocks also moved higher, with Kingdee International climbing over 6%, as Salesforce's better-than-expected results powerfully dispelled the "AI eats software" narrative, showing software firms can be winners rather than victims in the AI wave.
Data from the National Data Administration shows daily domestic token call volumes now exceed 140 trillion, a more than 1,000-fold increase from 100 billion at the start of 2024 and over 40% higher than the 100 trillion recorded at the end of 2025. Zhongyuan Securities notes that the sharp rise in daily token call volumes indicates domestic AI applications are entering a phase of rapid growth. Model vendors continue intensive iterative updates, further enhancing capabilities in long-text processing, inference performance, agent functionality, code generation, and multimodal domains, accelerating application deployment in AI marketing, AI multimodal content, AI e-commerce, and other areas while pushing commercialization forward.
Southwestern Securities believes the AI hardware phase has moved into an earnings validation stage, with application-side momentum gradually becoming a key market focus. As model capabilities improve and corporate acceptance of AI tools rises, office, industrial, and software services are likely to see increasing commercialization opportunities.
The Hong Kong Internet ETF Huabao (513770) passively tracks the CSI Hong Kong Stock Connect Internet Index, with heavyweight holdings including Alibaba-W, Tencent Holdings, and other tech giants alongside AI application companies across various sectors. The top ten weights collectively account for over 80%, and strong leader concentration is evident. The ETF supports same-day T+0 trading and offers ample liquidity. Off-exchange investors can consider the feeder funds (Class A 017125, Class C 017126).
Note: Fees are detailed in each fund's legal documents. Data sourced from public information from the Shanghai, Shenzhen, and Hong Kong exchanges, as of August 28, 2026. Reminder: Market volatility may be elevated recently, and short-term gains or losses do not predict future performance. Investors should make rational decisions based on their own capital positions and risk tolerance, with close attention to position and risk management.
Institutional perspectives referenced from: Morgan Stanley's August outlook, "Morgan Stanley's Latest View: AI Investment Enters 'Half-time Breather,' Two New Main Lines to Watch"; China Securities' August 23 report, "Super El Nino Strengthens Grain Price Upside Potential and Agrochemical Demand"; China Securities' August 20 report, "August AI Monthly: Steady Players Increase Computing Investment, Application Flywheel Closed-Loop Beats Expectations"; Zheshang Securities' July 2 report, "The Hotter AI Gets, the Pricier Security Becomes"; Zhongyuan Securities' April 28 report, "AI Models Update Densely, Capability Gains Bring Application Opportunities"; and Southwestern Securities' August 26 report, "AI Hardware Enters Earnings Validation, Application Side to Become Key Focus."
Risk disclosure: The Chemical ETF Huabao passively tracks the CSI Specialty Chemicals Industry Theme Index, with base date December 31, 2004, and launch date April 12, 2012. The Agricultural & Fishery ETF Huabao passively tracks the CSI All-Share Agriculture, Animal Husbandry & Fishery Index, base date December 31, 2004, launched December 12, 2016. The Software Development ETF Huabao passively tracks the CSI All-Share Software Development Index, base date December 31, 2021, launched March 29, 2023. The Hong Kong Internet ETF Huabao passively tracks the CSI Hong Kong Stock Connect Internet Index, base date December 30, 2016, launched January 11, 2021. Index constituent composition adjusts per index methodology rules, and back-tested historical performance does not indicate future index performance. Any stocks mentioned are objective displays of index constituents and do not constitute stock recommendations, nor do they represent fund manager views or fund investment directions. Any information appearing in this article (including but not limited to stocks, commentary, forecasts, charts, indicators, theories, or any form of expression) is for reference only. Investors bear sole responsibility for their own investment decisions. Furthermore, any views, analyses, or forecasts herein do not constitute investment advice of any form to readers, and Huabao Fund assumes no liability for direct or indirect losses resulting from use of this content. Investors should carefully read fund legal documents including the Fund Contract, Prospectus, and Fund Product Information Summary to understand risk-return characteristics and select products appropriate to their risk tolerance. Past fund performance does not indicate future results, and performance of other funds managed by the fund manager does not constitute a guarantee of fund performance. Based on fund manager assessments, the Chemical ETF Huabao, Agricultural & Fishery ETF Huabao, and Software Development ETF Huabao carry a risk rating of R3-medium risk, suitable for balanced (C3) and above investors, while the Hong Kong Internet ETF Huabao carries a risk rating of R4-medium-high risk, suitable for aggressive (C4) and above investors. Suitability matching opinions are subject to sales institution determinations. Sales institutions (including fund manager direct sales and other distributors) evaluate fund risk per applicable regulations; investors should promptly monitor the fund manager's suitability opinions, which may not be consistent across sales institutions, and product risk ratings issued by sales institutions may not be lower than those issued by the fund manager. Differences exist between risk-return characteristics stated in fund contracts and fund risk ratings due to different considerations. Investors should understand fund risk-return profiles and choose fund products prudently based on their own investment objectives, time horizons, experience, and risk tolerance, assuming all risks themselves. Registration of these funds with the China Securities Regulatory Commission does not imply substantive judgment or guarantees regarding investment value, market prospects, or returns. Fund investing requires caution. MACD golden cross signals have formed; these stocks are trending upward nicely.
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