Key Takeaways:
Chinese active equity funds executed their most extreme rotation on record in the second quarter, pushing 18 of their top 20 holdings into AI hardware stocks while purging former core positions including Tencent Holdings and Kweichow Moutai.
Chinese active funds pushed 58.3% of top holdings into electronics and telecom by Q2-end, up 26.8 percentage points from Q1, as AI hardware displaced traditional blue chips.
The data, compiled by Wind Info from more than 4,000 actively managed equity and balanced funds, shows the top 20 now contain just two non-tech names — Contemporary Amperex Technology Co. at No. 4 and WuXi AppTec at No. 18.
Zhongji Innolight retained the top spot with 166 billion yuan ($23 billion) in fund holdings, followed by New Easytec at 136.5 billion yuan and Dongshan Precision in third. Cambricon Technologies, the domestic AI chip designer, ranked fifth. The bottom half of the top 10 was entirely electronics: NAURA Technology, GigaDevice Semiconductor, Yuanjie Technology, Advanced Micro-Fabrication Equipment and Chaozhou Three-Circle Industry (三环集团). Three-Circle posted the biggest ranking surge, jumping 126 spots to No. 10 from No. 136 in Q1, as fund holdings swelled to 33.5 billion yuan from less than 3 billion. Shengyi Technology, a copper-clad laminate producer, rose to No. 15 from No. 100.
The concentration leaves Chinese active funds acutely exposed to AI sentiment. Electronics and telecom now account for 58.3% of all heavy-position market value, up from 31.5% in Q1. Any reversal in AI demand or a US-China technology escalation could trigger a cascading unwind, given the narrowness of the bet.
The rotation swept across the full AI supply chain. Funds added positions in optical modules and chips (Zhongji Innolight, New Easytec, Yuanjie Technology), semiconductor equipment (NAURA, AMEC, Skyverse, Changchuan Technology, Tomson Technology), foundry services (Semiconductor Manufacturing International Corp.), and PCB materials (Shengyi, Three-Circle). The top five stocks by market value increase were all AI hardware names: Zhongji Innolight, New Easytec, Cambricon, Dongshan Precision and NAURA Technology.
On the sell side, the purge was equally sweeping. Tencent Holdings saw the largest absolute decline in fund holdings at more than 18.7 billion yuan, followed by CATL, Kweichow Moutai, Alibaba Group and Zijin Mining Group. All four major baijiu distillers — Moutai, Wuliangye Yibin, Shanxi Xinghuacun Fen Wine and Luzhou Laojiao — were sold down. Resource stocks including Zijin, Chifeng Jilong Gold, Zhongjin Gold and CNOOC also appeared among the top decliners, suggesting fund managers rotated out of commodities to fund AI purchases.
The breadth of AI-related holdings distinguishes this rotation from prior thematic booms. Unlike the 2020-2021 new energy rally that concentrated in battery and solar names, the current AI positioning stretches across at least three distinct sub-chains: global AI infrastructure (optical modules, PCBs, servers), domestic semiconductor production (chip design, foundry, equipment, testing), and basic components (ceramic packages, copper-clad laminates, electronic fabrics). Even China Jushi, a building materials company, qualified as an AI beneficiary because its electronic fabric feeds into PCB production.
The flip side of the rotation is extreme portfolio crowding. With 18 of the top 20 positions in two sectors, fund performance is now tightly correlated with AI industry fundamentals and the valuation trajectory of a handful of stocks. The Q2 data shows fund managers sold not just consumer and internet names but also energy and precious metals positions that had performed well in prior quarters, suggesting the rotation was funded by profit-taking across multiple former winners.
This article is for informational purposes only and does not constitute investment advice.
