Mutual fund positions in technology reached a record high in 2Q 2026

Overview

This report focuses on changes in capital allocation within the China equity market in 2Q 2026. UBS believes that after global market attention returned to AI-related large technology sectors, A-share mutual funds significantly increased allocations to technology-related industries and sectors, especially electronics, telecommunications, machinery, the STAR Market, and ChiNext. Meanwhile, northbound capital shifted from net outflows to large-scale net inflows, mainly into the industrials and information technology sectors.

Core views

The core view is that crowded trading and deleveraging pressure in A-share technology have caused recent volatility, but fundamentals and the policy environment still support the technology direction. UBS expects year-on-year earnings growth for the entire A-share market to rise from 3.9% in 2025 to 11% in 2026; profit growth for industrial enterprises is accelerating, earnings expectations for ChiNext and the STAR Market continue to be revised upward, and policy support for AI development remains a long-term tailwind. Regulators, state-owned capital operation companies, and insurance capital have all sent signals of market stabilization; trading volume in CSI 300, ChiNext, and STAR 50 ETFs has expanded and seen large-scale net inflows, while margin financing balances in the technology sector have contracted significantly, indicating that this round of A-share deleveraging may be nearing its end.

Analysis framework

The report mainly evaluates shifts in A-share sector allocation and market positioning through indicators such as quarterly mutual fund holdings, the share of AUM in actively managed thematic funds, sector overweight ratios, northbound and southbound capital flows, ETF trading and net inflows, margin financing balances, and leverage ratios.

Methodology notes

• Fund holding identificationDefinition of actively managed thematic funds

  If at least seven of a fund's top ten holdings come from a specific industry and their combined weight exceeds 50%, it is defined as an actively managed thematic fund.

  This definition is used to identify actively managed thematic funds in technology, consumption, new energy, and other areas, and to compare their AUM share within total actively managed mutual fund AUM.

• Capital flow analysisEstimation of northbound capital net inflows by industry

  Estimate net inflows and net outflows of northbound capital in 2Q 2026 by industry.

  The report uses this method to observe how overseas capital responds to the attractiveness of A-share hard technology, with industrials and information technology being the main inflow directions.

• Valuation methodDCF、Gordon growth、relative valuation

  When covering Hong Kong and mainland China equities, multiple valuation methods are used, including DCF, Gordon growth, and relative valuation multiples such as PE, EV/EBITDA, and P/BV.

  This section comes from the valuation methodology and risk disclosure, explaining the valuation frameworks UBS may use for covered stocks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• A-share broader technology sector

  Core beneficiary asset

  Strengths

  Both mutual fund positions and overweight ratios reached record highs, supported by AI capital expenditure, policy support, and upward earnings revisions.

  Weaknesses

  Recent volatility reflects profit-taking, crowded trading, and deleveraging pressure.

  Comparison

  The 57.3% position level is already significantly higher than the previous peak of 43.7% for the broader consumer sector.

  Risks

  Crowded trading, margin deleveraging, global tech stock volatility, and policy execution falling short of expectations.

• Electronics

  One of the industries with the largest mutual fund allocation increases

  Strengths

  The global AI wave is driving technology hardware fundamentals, while positions and overweight ratios have risen to historical highs.

  Weaknesses

  Sensitive to the global technology capital expenditure cycle.

  Comparison

  Positions increased by 20.2 percentage points quarter-on-quarter in 2Q, marking a standout allocation increase.

  Risks

  A slowdown in AI capital expenditure, weaker-than-expected earnings delivery, and overheated trading.

• Telecommunications

  An important allocation increase direction within the technology chain

  Strengths

  Positions and overweight ratios rose significantly to historical highs.

  Weaknesses

  The report shows telecommunications was one of the few industries with net outflows from northbound capital.

  Comparison

  Mutual fund positions rose 4.4 percentage points quarter-on-quarter, but northbound capital saw a net outflow of RMB 3.1 billion.

  Risks

  Divergent capital flows, valuation pressure, and the risk of industry fundamentals falling short of delivery.

• Machinery

  Allocation increase direction in the growth chain

  Strengths

  Rapid growth in the humanoid robot value chain and a recovery in overseas growth for construction machinery.

  Weaknesses

  The allocation increase was smaller than in electronics and telecommunications.

  Comparison

  Positions rose 0.8 percentage points quarter-on-quarter in 2Q.

  Risks

  Humanoid robot industry progress falling short of expectations and an unstable recovery in overseas demand.

• STAR Market and ChiNext

  Allocation vehicles for growth technology sectors

  Strengths

  Mutual fund positions both reached record highs, and earnings expectations continue to be revised upward.

  Weaknesses

  Sensitive to changes in liquidity and risk appetite.

  Comparison

  Positions in the STAR Market and ChiNext rose 9.9 and 3.5 percentage points quarter-on-quarter, respectively.

  Risks

  High volatility, valuation pullbacks, and short-term pressure caused by shrinking margin-financed positions.

Key data

• Quarter-on-quarter change in electronics position+20.2个百分点One of the industries with the largest allocation increase by mutual funds in 2Q 2026.
• Quarter-on-quarter change in telecommunications position+4.4个百分点A notable increase in allocation by mutual funds in 2Q 2026.
• Quarter-on-quarter change in machinery position+0.8个百分点Benefited from rapid growth in the humanoid robot industry chain and a recovery in overseas growth for construction machinery.
• Quarter-on-quarter change in STAR Market position+9.9个百分点Mutual fund positions in the STAR Market reached a record high in 2Q 2026.
• Quarter-on-quarter change in ChiNext position+3.5个百分点Mutual fund positions in ChiNext reached a record high in 2Q 2026.
• Position in the broader technology sector57.3%Mutual fund positions in the broader technology sector reached a record high.
• Overweight ratio in the broader technology sector18.5%The mutual fund overweight ratio in the broader technology sector reached a record high.
• AUM share of actively managed technology-theme funds27.5%Its share of total actively managed mutual fund AUM reached a record high in 2Q 2026.
• Net inflow of northbound capital人民币223十亿元Turned into a net inflow in 2Q 2026 from a net outflow of RMB 13 billion in 1Q 2026.
• Net inflow of northbound capital into industrials人民币128.5十亿元One of the main industry-level net inflow directions for northbound capital in 2Q 2026.
• Net inflow of northbound capital into information technology人民币67.2十亿元One of the main industry-level net inflow directions for northbound capital in 2Q 2026.
• Expected A-share earnings growth in 202611%UBS expects year-on-year earnings growth for the entire A-share market to recover from 3.9% in 2025 to 11% in 2026.

Impact & implications

Capital allocation signals show that the main market focus in A-shares is becoming further concentrated in hard technology and AI-related directions. Record-high technology positions held by mutual funds imply that sector fundamentals and policy narratives are receiving stronger institutional reinforcement, but they also raise crowding and sensitivity to volatility. If deleveraging is nearing its end and earnings expectations continue to be revised upward, the technology sector may regain allocation appeal after pullbacks; if risks related to real estate, exchange rates, or policy worsen, overall risk appetite for Chinese equities could be hit.

Risks

• China's equity market faces the risk of a hard landing in the real estate market.
• RMB depreciation could trigger capital outflows.
• Slow progress in structural reform could suppress risk appetite.
• Excessive stimulus policy could hinder the transition from an investment-driven model to a consumption-driven model and increase debt at the government and state-owned enterprise levels.
• Recent volatility in technology stocks, profit-taking, crowded trading, and deleveraging pressure may continue to disturb the market.

What to watch

• Whether A-share margin financing balances and technology-sector margin financing balances continue to decline and stabilize.
• Whether trading volume and net inflows for CSI 300, ChiNext, and STAR 50 ETFs continue.
• The direction of profit growth for industrial enterprises and earnings revisions for ChiNext and the STAR Market.
• Whether AI-related policy support and global technology capital expenditure can continue.
• Whether northbound capital continues to flow into the industrials and information technology sectors.
• Whether mutual fund technology positions become further crowded or begin to rebalance toward other sectors.