A growing force in China’s technology self-reliance and supply chain security.

Faced with challenges arising from the global pandemic and heightened geopolitical tension, China’s technology self-reliance and supply chain security have never been as important as today. ‘Little giants’, a group of government-endorsed innovative SMEs, are on the rise in the nation’s push to achieve technology independence and strengthen advanced manufacturing capabilities.

Portraying little giants. Currently 310 out of the over 4,700 little giants are listed, primarily in strategically important sectors like industrials, IT and materials. These stocks reported faster revenue growth and higher gross margin than the broad market and ChiNext companies from 2018 to 2020, and are committed to innovation with more R&D expenditure.

Key sector trends of little giants. In industrials, we expect automation and aerospace will be the breeding ground for little giants. The battery sector will benefit from higher EV penetration. In technology, we anticipate China to continue its domestic substitution push and provide support to the domestic semiconductor ecosystem. IoT proliferation and artificial intelligence are other two key themes. In the healthcare space, medical device, biological and chemical upstream manufacturing, and development in IVD subsector are three areas to watch for. In auto, NEV and intelligent vehicle are two mega-trends to underpin strong demand along the value chain in China.

List of little giants. We compiled company profiles for 32 little giants based on their market cap of respective sub-sectors for investors’ reference. Our Quantitative and Systematic Strategy team (QSS) created a basket of the little giants to track their performance and understand factor tilts.