On June 2nd, the defense sector remained sluggish with volatile intraday movements.
The core asset of the sector, the Huabao Military Industry ETF (512810), fell over 3% in early trading to hit a new low for the year.
It closed down 0.81%, breaking below its 200-day moving average on heavy volume, with an intraday swing of 3.38%. Turnover reached 54.27 million yuan, a surge of over 40% from the previous day.
Over the past two days of consecutive declines, net subscriptions of over 30 million yuan flowed into the fund.
Fujian Torch Electron Technology Co.,Ltd. (SHSE: 603678)
Constituent stocks were predominantly lower, showing significant divergence.
Bolstered by its MLCC concept, Fujian Torch Electron Technology Co.,Ltd. continued its rally, hitting the daily limit-up for the third time in four days and reaching a fresh three-year high.
Hongyuan Electronic also surged to the limit-up in the afternoon session.
In contrast, several heavyweight "China" state-owned stocks were major drags on the sector, with China Satellite, AVIC Optoelectronics, China Power, and AVIC Shenyang Aircraft closing lower.
Analysis indicates that benefiting from robust AI demand, the MLCC industry is entering a new cycle of price increases and upward momentum.
Companies like Fujian Torch Electron Technology Co.,Ltd. and Hongyuan Electronic, besides their military passive component businesses, also have civilian operations in areas like AI server power supplies and power storage markets.
The development of the AI industry is providing these firms with a new growth narrative.
Taking a longer view, the defense sector has been in a sustained downtrend since mid-May.
The Huabao Military Industry ETF (512810) fell 8.24% in May, while the Shanghai Composite Index declined 1.06% over the same period.
Why has the defense sector significantly underperformed the broader market?
From a capital flow perspective, against a backdrop of risk appetite shifting towards both ends of the spectrum in Q2, funds have been rotating out of growth stocks like the commercial aerospace theme, which had seen strong gains and carried relatively high valuations.
Fundamentally, the sector is currently in a transitional period between the 14th and 15th Five-Year Plans.
The issuance of related orders in the defense field is experiencing some lag, leading to relatively weak industry performance in Q1 2026, which may have intensified selling pressure.
As the market adjusts, sector valuations continue to deflate, and the attractiveness of investing at current levels is beginning to emerge.
The latest trailing P/E ratio for the underlying index of the Huabao Military Industry ETF (512810) is 70.91x, which is now lower than its level for over 50% of the time in the past three years.
It is worth noting that despite short-term pressure on domestic demand, positive structural changes are emerging within the industry.
Analysts point out that military export orders have exceeded expectations, with Chinese-made equipment demonstrating cost-effectiveness and reliability advantages in recent geopolitical conflicts, creating favorable conditions for breakthroughs in arms trade.
Other analysis indicates that the industrialization synergy between aero-engines and gas turbines, along with the medium-to-long-term upward trend of commercial aerospace, remains intact, maintaining a positive outlook.
The Huabao Military Industry ETF (512810) aggregates cutting-edge military technologies across "land, sea, air, and space," providing comprehensive exposure to popular themes like commercial aerospace, military AI, large aircraft, and the low-altitude economy.
It is also eligible for margin trading and the Stock Connect programs, serving as an efficient tool for investing in core defense assets.
Data is sourced from the Shanghai and Shenzhen Stock Exchanges and public information.
Investors should note that commissions of up to 0.5% may be charged by the subscription and redemption agent when transacting fund units, which includes relevant fees charged by the stock exchanges and registration institutions.
Risk Warning: The Huabao Military Industry ETF passively tracks the CSI Military Industry Index. The index's base date is December 31, 2004, and it was launched on December 26, 2013. The constituent stocks mentioned are for illustrative purposes only; descriptions of individual stocks are not investment advice of any form and do not represent the holdings or trading动向 of any fund managed by the management company. The composition of the underlying index is adjusted according to its compilation rules. The fund manager assesses the risk rating of the Huabao Military Industry ETF as R3-Medium Risk, suitable for investors with a Balanced (C3) or higher risk profile. All information appearing herein is for reference only, and investors are responsible for their own investment decisions. Furthermore, any views, analysis, or forecasts herein do not constitute investment advice to readers, and no liability is accepted for any direct or indirect losses arising from the use of this content. Fund investment carries risks. The past performance of a fund is not indicative of its future results. The performance of other funds managed by the fund manager does not guarantee the performance of this fund. Invest with caution.
Comments