The sharp volatility of the A-share market around the 4,000-point mark has abruptly halted the ‘money-making effect’ that China’s public funds enjoyed for seven consecutive quarters. According to Wind Data, in the fourth quarter of 2025, public funds incurred losses of nearly 110 billion yuan, marking the first quarterly loss after seven straight quarters of profitability. However, buoyed by a strong performance in the first three quarters, the industry raked in a staggering 2.6 trillion yuan in annual profit, not only setting a new historical peak but also fully erasing the cumulative losses sustained since 2022. The rebalancing path reveals a decisive pivot towards technology and cyclical sectors, with communications and electronics remaining in focus. Zhongji Xuchuang (中际旭创, 300308.SZ) has replaced CATL (宁德时代, 300750.SZ) as the top holding for active funds, while cyclical sectors like petroleum & petrochemicals and non-ferrous metals saw significant increases in allocation. This strategic shift towards tech and cyclical sectors underscores a fundamental change in institutional investment strategy amid market recalibration.
Executive Summary: Key Takeaways for Investors
– Public funds in China reported a quarterly loss of approximately 109.8 billion yuan in Q4 2025, ending a seven-quarter profit streak, primarily due to equity market volatility.
– Despite the Q4 setback, the industry’s annual profit reached a record 2.6 trillion yuan, fully recovering from the 1.87 trillion yuan in losses accrued during the 2022-2023 market adjustment.
– Portfolio rebalancing intensified, with a clear migration of capital into technology and cyclical sectors. Communications, electronics, and related tech stocks like Zhongji Xuchuang saw massive inflows.
– Fixed-income products acted as a stabilizer, generating profits in Q4, while equity funds bore the brunt of the losses.
– Looking ahead, fund managers highlight a more selective market, with dividend investing and港股通 (Hong Kong Stock Connect) opportunities gaining prominence for 2026.
The Fourth Quarter Reversal: An End to the Winning Streak
The final quarter of 2025 delivered a stark contrast to the preceding periods of growth for China’s public funds. After a period of accelerated gains, the A-share market entered a phase of volatile consolidation, with the Shanghai Composite Index wrestling around the psychologically significant 4,000-point level. This environment of intensified bull-bear battles directly eroded the profitability of fund managers.
Market Volatility and Direct Impact on Fund Profits
Data illustrates the subdued market conditions: the Shanghai Composite Index eked out a mere 2.22% gain in Q4, while the Wind Partial Equity Hybrid Fund Index fell by 1.61%. The fading market ‘赚钱效应’ (money-making effect) had a immediate impact. Statistics from First Financial, based on Wind Data, show that the aggregate profit of all public fund products under management was -109.765 billion yuan for the quarter. This figure decisively ended the seven-quarter盈利态势 (profitability trend) that had characterized the industry since earlier in the cycle.
Breakdown by Fund Type: Equity Funds Bear the Brunt
The pain was not evenly distributed. Products with high correlation to the stock market became the hardest hit. According to First Financial’s classification:
– Stock funds were the worst performers, posting a single-quarter loss of -130.691 billion yuan.
– Mixed funds followed closely,亏损 (incurring losses) of -49.956 billion yuan.
– Combined, these equity-oriented products saw a total quarterly loss of 180.647 billion yuan.
This represents a dramatic reversal from the third quarter, when stock and mixed funds were the profit pillars, generating nearly 1.84 trillion yuan in combined earnings. The average return for equity funds plummeted from 22.72% in Q3 to -1% in Q4. Other categories like QDII funds and FOFs also slipped into the red for the quarter, losing 71.047 billion yuan and 212 million yuan, respectively.
A Record-Breaking Year Despite Q4 Headwinds
While the fourth quarter presented challenges, it did not overshadow an exceptionally strong full-year performance for China’s public fund industry. The annual figures tell a story of remarkable recovery and growth.
Annual Profit Milestones and Historical Context
First Financial’s statistics confirm that public funds amassed a total profit of 2.6 trillion yuan in 2025, setting an all-time historical record. This achievement is even more significant when viewed in context. The consecutive profitable years of 2024 and 2025 have completely覆盖 (covered) the cumulative losses of 1.87 trillion yuan formed during the market adjustment period from 2022 to 2023. This represents a dual breakthrough in industry profit restoration and scale growth. Even with the Q4 dip, equity funds still managed to deliver a full-year profit of 1.99 trillion yuan, highlighting the strength of the earlier quarters.
The Stabilizing Role of Fixed-Income Products
In contrast to the volatility of equities, fixed-income品种 (varieties) continued their role as the ballast for portfolios. During the turbulent fourth quarter:
– Bond funds contributed a profit of 58.081 billion yuan.
– Money market funds added 44.313 billion yuan in profits.
For the entire year, fixed-income products handed in a profit report of 372.315 billion yuan, demonstrating their critical function in providing stability and consistent returns. Alternative investment funds and REITs also provided steady profit输出 (output) throughout the year, with annual profits of 103.945 billion yuan and 2.989 billion yuan, respectively.
Strategic Portfolio Rebalancing: Embracing Tech and Cyclical Sectors
The most telling narrative from the Q4 data is not just the loss, but where fund managers chose to reposition their capital. The调仓路径 (portfolio adjustment path) reveals a calculated and significant rotation into specific areas of the market. The core of this new strategy is a focused buildup in technology and cyclical sectors. This shift towards tech and cyclical sectors reflects a belief in their fundamental growth drivers and valuation opportunities amidst the market churn.
The Rise of Tech Holdings: Communications and Electronics in Focus
Technology remains a paramount theme. The communications sector, particularly the CPO (Co-packaged Optics) sub-segment, became a magnet for institutional capital. Two stocks epitomize this trend: Zhongji Xuchuang (中际旭创, 300308.SZ) and Xinyisheng (新易盛). Both surged past Kweichow Moutai (贵州茅台, 600519.SH) to rank among the top three most-held stocks by public funds. In Q4 alone, Zhongji Xuchuang was added to 650 more fund portfolios, while Xinyisheng entered 273 new ones. Their stellar annual performance—gains of 396.38% and 424.03%, respectively—validated the aggressive positioning. The total fund holding市值 (market value) for these two tech leaders reached 1.1621 trillion yuan and 124.6 billion yuan.
Cyclical Sectors Gain Traction: Resources and Finance
Parallel to the tech rally, traditional cyclical sectors witnessed a notable resurgence in institutional favor. Data shows that the四大板块 (four major sectors) of petroleum & petrochemicals, non-ferrous metals, non-bank finance, and banking were the primary directions for public fund加仓 (increased holdings) in Q4, with each seeing net purchases exceeding 1 billion shares. For instance, Industrial Bank (兴业银行, 601166.SH), China Cinda (中国信达, 01359.HK), and ICBC (工商银行, 601398.SH) all received increases of over 500 million shares. Broad-based ETFs, especially those tracking the沪深300 (CSI 300 Index), were a major force behind the buying in banking stocks. Similarly, China Petroleum & Chemical Corporation (中国石化, Sinopec, 600028.SH) and PetroChina (中国石油, 601857.SH) saw combined net buying of 270 million shares, favored by numerous dividend-themed products.
Top Holdings Reshuffled: New Leaders in the Spotlight
The reordering of the top ten重仓股 (heavily held stocks) provides a microcosm of the broader sector rotation. While the list of companies remained largely familiar, their rankings underwent significant changes, signaling shifting convictions among fund managers.
Changes in Individual Stock Rankings and Fund Activity
CATL (宁德时代, 300750.SZ), though减持 (reduced) by 19.93 million shares in Q4, retained its position as the overall top holding by market value at 181.8 billion yuan. However, the more dynamic story is in active funds, where Zhongji Xuchuang usurped CATL to become the number one重仓股. A total of 1,273 active funds collectively held 135 million shares, with 800 products listing it among their top three holdings. High-profile fund managers were active buyers; for example, Nong Bingli (农冰立) managed景顺长城品质长青 (Invesco Great Wall Quality Evergreen Fund) added 1.747 million shares, making it his top holding. Liu Gesong (刘格菘) of GF Technology Pioneer and Xiao Nan (萧楠) of E Fund High Quality Strict Selection Three-Year Holding also executed substantial purchases. Kweichow Moutai fell to fourth place, while Zijin Mining (紫金矿业, 601899.SH) and Ping An Insurance (中国平安, 601318.SH) saw rankings improve after significant share additions.
Thematic Shifts: From AI Chips to Financials
Other notable moves included increased holdings in Cambricon (寒武纪-U, 688256.SH), an AI chip designer, which entered 1,062 fund portfolios. China Merchants Bank (招商银行, 600036.SH) re-entered the top ten with a total holding value of 57.9 billion yuan. Conversely, East Money (东方财富, 300059.SZ) was substantially reduced by 661 million shares, dropping to 15th place. These adjustments highlight a nuanced strategy that balances offensive plays in high-growth tech and cyclical sectors with selective additions in undervalued financial names.
Industry Allocation Trends: Where Capital is Flowing
Zooming out from individual stocks, the sector-level allocation data paints a clear picture of institutional preference at the end of 2025. The commitment to tech and cyclical sectors is evident in the top重仓配置行业 (heavily allocated industries).
Sectoral Increases and the New Top Three
As of Q4 2025, the electronic sector maintained its pole position as the public funds’ largest allocation. Funds held 321 electronic stocks with a total market value of 741 billion yuan. The power equipment sector followed with 377.4 billion yuan. Notably, the communications sector, with 76 held stocks worth 355.5 billion yuan, replaced the医药生物 (pharmaceuticals and biology) sector to become the third-largest重仓板块. This cemented technology’s dominance at the top of the allocation hierarchy. The inflow into石油石化 (petroleum & petrochemicals) and有色金属 (non-ferrous metals) further solidifies the dual-theme investment approach focusing on both innovation and economic cycle recovery.
The Role of Thematic and Passive Investment Vehicles
The sector rotations were often executed through specialized ETFs, which have become crucial tools for efficient capital deployment. The surge in holdings for banks and oil majors was partly driven by products like the Morgan Stanley S&P HK Stock Connect Low Volatility Dividend ETF, E Fund HK Stock Connect Dividend Fund, and the Southern CSI Guoxin HK Stock Connect Central SOE Dividend ETF. This underscores how passive strategies are amplifying active thematic bets, particularly in cyclical and dividend-focused areas.
Expert Perspectives and Forward Guidance
In a market characterized by轮动 (rotation) and increased selectivity, professional insights are crucial for navigating the path ahead. Fund managers are emphasizing a more discerning approach after the valuation expansions seen in some热门板块 (hot sectors).
Insights from Fund Managers on Valuation and Selectivity
Yun Lei (恽雷), fund manager of the Southern Industry Intelligent Selection Fund, offered a cautious perspective on the previously high-flying sectors like new consumption, innovative drugs, AI, and non-ferrous metals. While acknowledging strong fundamentals and support from domestic liquidity, he noted that valuations in some areas have expanded significantly and are already fully priced. ‘In the context of gradually reducing global market liquidity and extreme market differentiation, the requirements for stock selection have become more stringent,’ Yun Lei分析称 (analyzed). ‘The market will no longer continuously pay for concepts, visions, and pipelines.’ This sentiment calls for a higher bar in identifying genuine value within the tech and cyclical sectors universe.
Investment Implications for 2026: Dividends and港股通 Opportunities
Looking forward, Yun Lei and other market observers point to new priorities. He believes dividend investing will perform better in 2026 than it did in 2025. Furthermore, he highlights that the性价比 (cost-performance ratio) of港股通红利 (Hong Kong Stock Connect dividends) remains more attractive compared to A-share dividends. This suggests a potential cross-border dimension to the income and value strategies that may complement the growth-oriented bets on mainland tech and cyclical sectors. Investors should prepare for a market that rewards concrete profitability, sustainable cash flows, and strategic positioning in sectors aligned with policy support and economic cycles.
Synthesizing the Market Shift and Strategic Imperatives
The Q4 2025 report from China’s public fund industry delivers a multifaceted message. The quarterly loss, while notable, is a bump in the road of an otherwise spectacular year of record profits and full financial recovery. More importantly, the detailed portfolio data reveals a decisive and strategic pivot. Fund managers are not retreating but are aggressively reallocating capital towards what they perceive as the most promising growth vectors and value opportunities. The unwavering focus on technology and cyclical sectors is the dominant theme, reshaping top holdings and industry allocations. For global investors and institutional allocators, this provides a critical roadmap. The era of broad, indiscriminate gains may be giving way to a phase of precise, theme-driven investment. To capitalize on this evolution, market participants must deepen their analysis of subsectors within technology—like semiconductors, communications, and AI infrastructure—and closely monitor the resurgence in resource and industrial cyclical names. Furthermore, the growing emphasis on dividends and港股通 assets presents a compelling diversification angle. The call to action is clear: align your China equity strategy with the institutional flows, prioritize fundamental selectivity over narrative chasing, and position portfolios to benefit from the sustained momentum in tech and cyclical sectors while balancing risk with income-generating assets.