Executive Summary
Key takeaways from the current market dynamics and fund manager strategies:
– Several Chinese equity funds have shown reduced volatility, indicating tactical position trimming by managers to preserve year-to-date gains, particularly in technology holdings.
– Flexible allocation funds are proving advantageous in turbulent markets due to their ability to adjust equity exposure dynamically, unlike constrained stock-focused funds.
– Market corrections are viewed by many professionals as a healthy reset, potentially creating new operational space for future portfolio deployment.
– Investment focus is shifting towards infrastructure like computing power, AI applications, and new consumer trends, with valuations becoming more attractive after recent dips.
– Despite year-end caution, fund managers maintain a constructive outlook for Chinese equities, especially in growth-oriented sectors, advising investors to look through short-term noise.
In the whipsaw environment of China’s A-share market, where indices can swing dramatically within sessions, a subtle but significant shift is unfolding in fund portfolios. Astute observers note that certain products have recently exhibited anomalously low volatility, their net asset values tracing near-flat lines even as benchmarks corrected. This tranquility amidst the storm signals deliberate action by fund managers—some locking in profits from a stellar year, others stealthily repositioning for the quarters ahead. At the heart of this maneuvering lies a consensus: the recent pullbacks are not merely a threat to returns but a necessary clearing event. This correction, professionals argue, is actively creating new operational space for investors by compressing valuations and separating resilient trends from speculative froth. For global institutional investors tracking Chinese equities, understanding these nuanced moves is critical to anticipating where smart capital will flow next.
Fund Managers’ Tactical Moves to Preserve Annual Gains
The closing months of the year often trigger a reevaluation of portfolio risk, and 2024 is no exception. Discrepancies between reported holdings and actual fund performance suggest several managers have quietly reduced exposure to high-flying sectors.
Case Studies in Minimal Drawdown
Consider the Guangfa Xinyi Fund (广发鑫益). On December 16, when major A-share indices fell sharply, this fund declined a mere 0.22%. Extending the timeline reveals even more telling data: since hitting a record high on October 27, its drawdown has been capped at 2.57%. This stability is incongruent with its third-quarter report, which showed a stock仓位 (position) exceeding 90%, heavily weighted in volatile names like Luxshare Precision (立讯精密), GigaDevice (兆易创新), TFC Optical (天孚通信), and Zhongji Innolight (中际旭创). The fund’s manager, Fei Yi (费逸), appears to have pared back risk. Similarly, other funds under his stewardship, such as Guangfa Juru and Guangfa Rui’an Jingxuan, displayed comparable resilience. Across the market, firms like Yimin Fund saw several of its equity products experience markedly reduced波动 (volatility) from late October onward, with some net asset value charts resembling a straight line. Yimin Service Leading Fund’s (益民服务领先) manager, Guan Xu (关旭), had presciently noted in the Q3 report that after the Shanghai Composite approached 3800 points in mid-September, trading volume narrowed, increasing the probability of short-term震荡 (volatility).
Manager Insights on Profit-Taking
One fund manager, heavily invested in tech, candidly explained the rationale: “In November, for our overseas computing power chain holdings where valuations had already priced in about 20 times next year’s P/E and gains were substantial, we saw limited further upside and chose to reduce positions.” He added that for parts of the domestic computing power industry, where stock prices had repaired or even超前透支 (prematurely discounted) 2025’s optimistic earnings expectations, the upward momentum weakened, prompting a “sell while walking” strategy. This proactive stance has paid off: Guangfa Xinyi is up approximately 50% year-to-date, and Yimin Service Leading has gained over 33%. While not the explosive “doubling” funds seen in the tech rally, their controlled drawdowns during repeated pullbacks have allowed for steady净值积累 (net value accumulation). A fund manager in North China revealed, “We recently lowered仓位 slightly but remain at a medium-high level overall. The main change was adjusting the structure, increasing defensive sectors like service-oriented consumption.”
The Strategic Edge of Flexible Allocation Funds
In navigating this volatility, a specific fund category has demonstrated distinct advantages: the灵活配置型基金 (flexible allocation fund). Their structural design provides a critical tool for managers seeking to create new operational space in choppy markets.
Regulatory Flexibility and Risk Management
A public fund research professional highlighted the key difference: unlike ordinary stock funds, which by mandate must maintain at least 80% equity exposure, flexible allocation funds can adjust their stock holdings from 0% to 95% as per their contracts. This allows them to potentially move to cash in extreme scenarios. “Unshackled from high仓位 constraints, these funds can flexibly reduce equity weight during market downturns to mitigate risk and increase it during recoveries to capture gains. Their operational agility far exceeds that of ordinary stock funds,” the person noted. However, this flexibility demands superior market judgment and timing skills from the manager, arguably making overall portfolio management more challenging. This capacity to dynamically shift assets is precisely what can carve out new operational space when markets turn.
Expert Commentary on Adaptive Strategies
Yang Delong (杨德龙), a fund manager at Frontsea Harvest Fund (前海开源基金), believes managers should primarily counter volatility through two methods: controlling drawdowns via仓位 management and, within fund合同 (contract) limits, rotating holdings to avoid overbought sectors and capture emerging opportunities. “But this places higher demands on the manager’s ability and is constrained by product type. For example, thematic funds have strictly defined investment scopes and cannot operate cross-sector to avoid style drift,” he stated. This underscores why flexible funds, with their broader mandates, are currently in a stronger position to tactically create new operational space for their investors.
Market Corrections as a Gateway to New Opportunities
Far from signaling despair, the recent market softening is interpreted by many seasoned investors as a constructive development. The phrase “跌出新的操作空间” (creating new operational space through declines) captures this optimistic reframing perfectly.
Valuation Resets and Future Deployment
The same fund manager who discussed profit-taking elaborated on the flip side: “An adjustment after elevated valuations is healthy for the market. It creates new operational space for next year.” For stocks that were sold, he indicated a willingness to repurchase quality companies if prices retreat to more attractive levels. “We also recognize that strong stocks might digest valuations through high-level consolidation rather than deep corrections. If, after waiting, we see the stock price hasn’t adjusted but has consolidated and solidified its base, we would also consider buying back. This requires case-by-case analysis.” This mindset treats volatility not as a loss but as a mechanism that opens up new operational space for strategic entry.
Year-End Sentiment and Structural Optimism
Liu Jiang (刘疆), a fund manager at Great Wall Fund (长城基金), acknowledged that nearing year-end, market sentiment has turned cautious. Some capital seeks to realize profits, and shrinking trading volumes have led to a narrowing circle of强势品种 (strong performers) and快速轮动 (rapidly rotating hotspots) that are difficult to capture. “However, I tend to believe this is a necessary adjustment within a positive market, and its duration may not be long. The market’s prospects remain值得期待 (worth anticipating), with technology and emerging growth sectors continuing to serve as the engine,” he asserted. This perspective reinforces the idea that temporary downturns are merely clearing the path for the next advance, effectively creating new operational space for focused investments.
Forward-Looking Investment Directions Post-Correction
With new operational space emerging from recent price actions, fund managers are pinpointing sectors where they plan to deploy or increase capital. The consensus highlights technology infrastructure and evolving consumption patterns.
Technology and AI as Core Pillars
Manager Liu Jiang outlined several key foci for attention:
– Computing power as the core infrastructure domain: This赛道 (track) is seeing accelerated爆发 (explosion) in景气度 (prosperity). Specific opportunities lie in computing chips, optical communication, PCBs, liquid cooling technology, storage equipment, and satellite computing.
– AI-driven synergy between device-side and cloud: As AI infrastructure improves and technology iterates, “blockbuster” products could emerge in hardware and cloud applications.
– Embodied intelligence场景落地 (scenario implementation): Products like humanoid robots, unmanned vehicles, and drones will significantly benefit from advancements in AI capabilities.
New Consumer Trends and Overseas Expansion
Guan Jiaqi (管嘉琪), a fund manager at CITIC Prudential Fund (中信保诚基金), pointed to valuation opportunities in other areas. “At current levels, many excellent new consumer companies and those focused on出海 (going global) have seen their P/E valuations for 2026 fall to around 15 times. Horizontally comparing, this places them at the same level as traditional consumer stocks, suggesting limited further downside space,” she analyzed. From a medium-to-long-term view, as China’s demographic and economic structures evolve, the景气度 of new consumption and overseas expansion is expected to remain sustained. This represents another pocket where market adjustments have created new operational space for value-driven investments.
Synthesizing the Path Forward for Chinese Equities
The current market phase, characterized by heightened volatility and tactical fund adjustments, is far from a signal to retreat. Instead, it represents a strategic inflection point. Fund managers across China’s investment landscape are utilizing the flexibility in their tools—whether through profit-taking, strategic reallocation, or the use of flexible fund structures—to navigate the short-term noise. The overarching theme is that healthy corrections are essential; they wash out excess and, most importantly, create new operational space for discerning investors. This new operational space is not an abstract concept but a tangible outcome of compressed valuations and clearer sectoral leadership. For global institutional investors, the implications are clear: monitor the deployment of this dry powder into computing power, AI applications, and resilient consumer trends. The call to action is to engage with fund managers’ quarterly reports, track仓位 shifts in flexible funds, and recognize that in the Chinese equity market, today’s volatility is often the precursor to tomorrow’s opportunity. By focusing on sectors where new operational space is being actively created, investors can position themselves to participate in the next leg of growth.