China’s STAR Market Surges 34.8% on Chip Rally as Wall Street Turns Overweight

Record foreign net buying in the second quarter

AI and semiconductor self-sufficiency drive the rally

Total market value has doubled in a year

MetaX is rapidly closing the gap with Nvidia

Unitree and DeepSeek are in the IPO pipeline

UBS says Chinese stocks are undervalued and offer opportunity

Foreign capital is pouring into China’s STAR Market, often dubbed the country’s Nasdaq, at a record pace. China’s stock market had long been shunned by global investors because of escalating US-China tensions, a property slump and regulatory risks. That is changing as investors reassess the competitiveness of domestic Chinese companies such as ChangXin Memory Technologies, or CXMT, which have advanced technological self-sufficiency amid the US-China rivalry.

Top performer among major indexes

The STAR 50 Index has climbed 34.80% since the start of the second quarter through July 28, according to the Shanghai Stock Exchange. The benchmark tracks 50 of the STAR Market’s largest listings. That outpaced the Kospi’s 19.22% gain, the Kosdaq’s 32.93% decline and the Nasdaq’s 15.22% rise over the same period. Foreign investors have been a key force behind the advance. Guosen Securities said 219.3 billion yuan, or about $30.6 billion, flowed into China’s mainland A-share market in the second quarter, a quarterly record. Analysts estimate a substantial share of that foreign money went into the STAR Market.

The STAR Market was launched in July 2019 to help high-tech companies raise capital. It struggled for a period under US semiconductor curbs. Sentiment shifted last year as enthusiasm for DeepSeek and expectations for domestic semiconductor and artificial intelligence development gathered momentum. The market rose 36% in 2025, setting off the current rally. Total market capitalization reached 15.6729 trillion yuan, or about $2.19 trillion, as of July 28, roughly double a year earlier. The number of listed companies rose by just 23 to 612 from 589, a 3.9% increase, while overall market value expanded sharply.

The market’s biggest companies have been reshuffled. CXMT, the memory-chip maker that listed on July 27, went straight to No. 1 by market capitalization. Chip designer Cambricon climbed to second place after posting its first annual profit in 2025, up from sixth when it listed in 2020. GPU design companies MetaX and Moore Threads, both founded in 2020, have also broken into the top ranks. The two companies, which listed at the end of last year, unveiled domestic chips that narrowed the performance gap with Nvidia products to 75% to 80%, placing them sixth and seventh by market value.

By contrast, software company Kingsoft Office, the market-cap leader three years ago, has fallen out of the top 10. Solar company Jinko Power, which ranked third, medical-device maker United Imaging Healthcare, which ranked fourth, and smartphone maker Transsion Holdings, which ranked sixth, have also dropped out. Park Soo-hyun, a senior analyst at KB Securities, said China’s AI boom is likely to have a bigger spillover effect on hardware companies than on software firms. In his view, the STAR Market offers the strongest appeal among China-focused equity markets because of its heavy concentration of companies leading AI hardware localization.

Domestic memory champion waits in IPO pipeline

Many analysts expect the STAR Market’s run to accelerate. Support from Chinese authorities to stabilize the stock market is one factor. Another is a growing lineup of potential listings including humanoid robot maker Unitree, Yangtze Memory Technologies and DeepSeek.

Baek Seung-hye, an analyst at Hana Securities, said shares of companies leading domestic substitution on the STAR Market could strengthen if AI fabless firms such as Cambricon deliver solid results during the August earnings season. Jeon Jong-gyu, a senior analyst at Samsung Securities, also sees the rally in STAR Market technology stocks continuing as growth at Chinese tech companies becomes clearer in the second half. He ranked the STAR Market as the most attractive investment destination, followed by Hong Kong and Shanghai.

Wall Street is also taking a closer look at Chinese technology stocks that have built their own ecosystems despite US containment measures. Citigroup recently raised its rating on Chinese equities to overweight from strategic neutral. Eva Lee, UBS’s head of Greater China equities, said leading Chinese AI companies have entered a historically very low valuation range, creating a compelling investment opportunity.

Jo Ara / Ko Song-hee, Hankyung.com reporters rrang123@hankyung.com