China Mutual Funds Rebalance Top Holdings: Giants Trimmed as Banks and Brokers Gain Favor

Major Portfolio Reshuffle Revealed

China’s public mutual funds executed significant portfolio adjustments in Q2 2025, reducing exposure to market giants while strategically increasing positions in financial institutions. The rotation signals shifting institutional sentiment as fund managers reallocate billions in assets. Recent filings reveal surprising moves in the nation’s 25.6 trillion yuan mutual fund industry, with all top-three holdings facing cuts while banking and securities firms saw substantial inflows.

Key Findings from Q2 Holdings Report

• Top holdings CATL, Kweichow Moutai and Tencent all reduced despite maintaining position rankings
• China Merchants Bank, Ping An Insurance and Orient Securities rose in fund preference
• Financial sector positions grew significantly via active and passive investment vehicles
• Major rotation out of healthcare and industrial names with utilities gaining favor

The Fallen Giants: Analyzing the Top Three Cuts

CATL: Battery Leader Faces Profit Concerns

Contemporary Amperex Technology (CATL) retained its position as China’s most-held stock with funds maintaining 142.6 billion yuan in exposure. Yet this represented a 7.3% reduction from Q1 as electric vehicle demand concerns grew. Actively managed funds proved particularly bearish, with Jiao Wei’s Yinhua Prosperity Fund cutting CATL exposure by 22%. Industry analysts attribute the caution to intensifying battery industry competition and slowing EV sales growth in Europe.

Kweichow Moutai: Luxury Liquor Loses Buzz

The premium baijiu producer saw funds reduce holdings by 6.2 billion yuan despite commanding a 125.2 billion yuan market position. Valuation concerns emerged as the stock traded at 38x forward earnings amid plateauing premium alcohol consumption. Actively managed funds took an especially cautious stance with Tang Xiaobin and Yang Dong’s GF Multi-Factor Fund completely exiting the position citing slowing revenue growth.

Tencent: Tech Titan Faces Headwinds

The Hong Kong-listed internet leader suffered significant cuts despite ranking as the top holding among active funds. Total exposure dropped to 77 billion yuan amid regulatory hurdles facing gaming approvals and advertising revenue pressures. Active funds cut Tencent positions nearly 30% more aggressively than overall fund reductions, reflecting intense debate about China’s platform economy outlook.

Financial Sector Emergence: Banks and Brokers Rising

Banking Brigade Gains Momentum

The most dramatic portfolio shift emerged in traditional banking stocks, with lenders outperforming CSI 300 index averages by 14% during Q2. Mutual funds aggressively added positions with Minsheng Bank registering the quarter’s largest net inflow at 583 million shares added. Passive funds executed massive reallocations due to index weighting changes while active managers embraced the sector’s defensive characteristics and attractive dividend yields.

Brokerage Surge Reflects Market Confidence

Securities firms became unexpected stars with Orient Wealth entering mutual funds’ top-ten holdings after a 37% position increase. Analysts trace this pivot to anticipation of revived market activity and policy support. Goldman Sachs noted: “China brokerages could see 16-18% earnings growth given derivatives market expansion anticipated this year.” Passive funds amplified the trend through CSI Financial ETFs which saw record quarterly inflows.

Sector Rotation Trends Beyond Financials

Healthcare Holdings Face Scrutiny

The pharmaceutical sector experienced bifurcation: While Shijiazhuang Pharmaceutical saw institutions add 419 million shares, healthcare funds simultaneously exited hospital operators. SinoCell Tech Funds’ CIO noted: “We’re selectively exiting hospital services due to regulatory risks while adding innovative biotechs.” Such differentiation created rare disconnects between mutual fund flows and overall sector performance.

Utilities Gain Safe-Haven Status

Hydropower producers emerged as defensive winners with Changjiang Power entering mutual funds’ top-ten holdings. The utility’s predictable cash flows represented infrastructure exposure without residential property risks. Both active and passive funds contributed to the 1.7 billion yuan inflow. This parallels a global utilities sector trend as investors hedge against potential market volatility.

Tech Divergence Creates Winners and Losers

Semiconductor specialist SMIC entered top holdings despite active fund reservations. Meanwhile, Alibaba suffered complete removal from fund favorites as e-commerce competition intensified. CSRC filings revealed funds rotated toward semiconductors as import substitution initiatives gained momentum while exiting crowded internet platform positions.

The Extreme Movers: Biggest Increases and Decreases

Investment Implications and Market Outlook

These portfolio shifts reveal fund managers prioritizing undervalued financials while rotating away from high-valuation tech names. The collective move suggests institutional caution around China’s consumption recovery while positioning for potential interest rate shifts. Analysts interpret banking sector inflows as anticipation of supportive monetary policy ahead of the Third Plenum.

Sector Allocation Shifts Explained

The dramatic sector rotation reflects macro-level concerns versus bottom-up stock selection. Mutual funds collectively reduced consumer staples and tech exposure by 15% sector-wide while financials increased by 22% allocation according to Guotai Junan Securities analysis. Passive vehicles magnified these moves through index-driven weight changes.

The Q2 portfolio rotation underscores institutional repositioning ahead of anticipated market reforms. With mainland indices trading at historically attractive valuations, these institutional shifts may precede broader market movements. Current patterns suggest undervalued financials represent compelling opportunities for long-term investors, though tech sector exposure remains necessary for diversification.

Strategic Portfolio Considerations

Individual investors should note these institutional moves signal shifting market leadership rather than wholesale strategy changes. Market historians recall similar rotations followed bull markets preceding regulatory shifts. China Securities Institute research director Zhang Jian noted: “Current moves resemble mid-2016 sector rotations before 80% financial sector outperformance.”

Consider re-examining your own allocations to ensure adequate exposure to emerging institutional favorites while maintaining discipline around diversification needs. Monitor evolving policy cues around interest rates and market reforms as these will determine continuation of Q2 trends. Review banking and brokerage ETFs for targeted exposure while remaining cautious about momentum-chasing overcrowded trades.