China’s mutual funds increased holdings of electronic stocks in the second quarter and trimmed positions in consumer names, as investment managers bought into the global artificial intelligence (AI) frenzy and China’s drive for tech self-reliance while piling into companies yielding high dividends.
Money managers in charge of 30.7 trillion yuan (US$4.2 trillion) in assets in China’s onshore mutual-fund industry boosted to 15.36 per cent the allocations to electronic names, an increase of almost three percentage points from the previous quarter, according to the data compiled by Hua An Securities based on funds’ quarterly reports. These also added positions in telecoms, power generators and utilities over the past three months, with high-dividend plays gaining popularity among investors as bond yields tumbled.
The sector rotation saw food and drink makers bearing the brunt of the sell-off, with their holdings as a percentage of mutual funds’ allocations dropping by 3.6 percentage points quarter-on-quarter to 9.47 per cent, the study said.
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Fund managers took advantage of a recovery in demand for electronic products spurred by the global craze for AI and China’s drive for tech self-reliance, adding names like Luxshare Precision Industry and Foxconn Industrial, which are both part of Apple’s supply chain. The offloading of food and beverages stocks followed China’s faltering macro economic indicators which has triggered a drop in consumer spending.
“With the recovery in the industrial sentiment, the worst for most of the electronic stocks is already behind them in terms of earnings,” said Mo Wenyu, an analyst at Cinda Securities.
The second quarter has been a challenging one in terms of stock picks by fund managers, with the broader market returning to the doldrums after the excitement of the first quarter’s state intervention in the stock market waned. The CSI 300 Index dropped 2.1 per cent in the April-to-June period with few bright spots in sector performances, as investors flocked to the safety of high-dividend stocks and bonds amid jitters about the growth outlook.
At the end of the second quarter, mutual funds had the biggest exposure to the electronics sector, according to Hua An Securities. Pharmaceutical and food and beverages makers ranked second and third, with weightages of 11.17 per cent and 9.47 per cent respectively.
Electric vehicle maker BYD, Foxconn Industrial, Tencent Holdings and Luxshare Precision were among the biggest stock additions during the period, according to Hua An Securities. Meanwhile, Kweichow Moutai, Luzhou Laojiao and Wuliangye Yibin, the nation’s biggest liquor distillers, suffered from the biggest cuts in positions.
At the end of June, onshore mutual funds held 193.7 billion yuan worth of Hong Kong-listed stocks through the exchange link programme, an increase of 36.2 billion yuan over the first quarter, according to Huachuang Securities. Tencent and oil producer CNOOC were their biggest holdings.
With few catalysts for stocks in the offing, the trade on high-dividend stocks will probably gain further traction through the rest of the year as investors hedge against uncertainty, according to a UBS analyst.
“We believe that the net inflow from long-term investors, including insurers, into the dividend strategy could continue, while short-term investors will continue to add exposure to related sectors and stocks in the second half to increase portfolio defensiveness,” Meng Lei, a Shanghai-based strategist at the Swiss bank said.
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