A recent report on public QDII (Qualified Domestic Institutional Investor) products for the fourth quarter of 2024 reveals a notable trend: QDII fund managers are accelerating their allocation towards Chinese stocksThis shift highlights a significant change in strategy as fund managers react to evolving market conditions and opportunities within the Chinese economy.

Last year, QDII fund managers significantly increased their holdings in technology sectors of Hong Kong and A-sharesIn the top ten holdings of several technology-focused QDII funds, these stocks have begun to dominate, contrasting sharply with previous positions that were heavily weighted towards U.SstocksThe optimistic expectations surrounding China's economic recovery have driven QDII funds that earlier focused primarily on U.S

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consumer stocks to shift back towards Chinese assetsSeveral QDII products have aggressively reduced their U.Sstock portfolio, positioning Hong Kong and A-shares as their primary core holdings, thereby altering the previously U.S.-centric investment landscape.

Numerous QDII fund managers have emphasized the sustained evolutionary strength of China's technology sectorCoupled with a surge in domestic demand, they foresee vibrant investment opportunities in both the technology and consumer sectorsThis promising outlook is anchored in China's capability for continuous innovation and growth.

Chinese Stocks Take Center Stage as Global QDII Strengthens A-share and Hong Kong Holdings

In a remarkable turn from previous trends where U.S

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companies dominated QDII portfolios, significant positions in Hong Kong and A-share stocks are gradually taking over the top holdings of global QDIIs within the technology realmThis realignment indicates a broader recognition of the potential that lies within China's markets.

Reports from Huabao's overseas new energy vehicle QDII fund show that after nearly exclusively investing in U.Sstocks, the fund has started to pivot toward Chinese assetsBy the end of December last year, the fund’s U.Sstock holdings were significantly reduced from 94.4% to 66%, a hefty 28-percentage-point cutMeanwhile, the fund began to build its positions in Hong Kong stocks, increasing their allocation from less than 0.3% at the end of September last year to 18.4%.

Additionally, renowned fund manager Li Yaozhu's GF Global Tech QDII has also emphasized Chinese assets, with its report for the fourth quarter of 2024 showing that A-shares now comprise over 20% of its stock portfolio, while Hong Kong stocks account for over 5%. Li’s strategic focus includes increasing investments in listed A-share companies, notably making Midea Group one of the top three holdings

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This QDII fund, initially geared towards the global market, now counts a majority of its top ten holdings as Chinese stocks.

Other QDII funds, including E-Fund’s Global Growth Selected QDII, Jiayin Global Selected QDII, Great Wall Global New Energy QDII, and Harvest Global Value Opportunity QDII, have also bolstered their allocations towards Chinese stocksThe Great Wall Global New Energy QDII identified A-shares and Hong Kong stocks as its second-largest core position by the end of last year, while the E-Fund Global Growth Selected QDII’s exposure to A-share stocks exceeded 21%, with approximately 12% in Hong Kong stocks, bringing its total Chinese asset allocation close to 33%.

QDII Funds Aggressively Buy Chinese Consumer Stocks

After assessing the global consumer stock landscape, QDII funds have started to increasingly view Chinese consumer stocks as core holdings, even integrating them as the primary allocation in some globally-focused QDII products.

After a year-long hiatus, Hong Kong stocks have made a comeback in the core holdings of the Huatai-PineBridge Global Consumer QDII

Previously devoid of Chinese stocks among its top ten holdings, by the end of December last year, the fund manager integrated Maogeping, a Hong Kong-listed cosmetics company, into these ranks for the first time, increasing the Hong Kong stock allocation in this QDII to 14%.

Clearly, QDII fund managers have recognized the investment opportunities prompted by the recurring value and accelerating recovery of China’s consumer sector, which has led several global-oriented QDIIs to prioritize Chinese stocks in their portfolios, disrupting the previously dominant U.Sstock allocation.

According to the 2024 fourth-quarter report by Wells Fargo's Global Consumer QDII, Chinese stock allocations have now surpassed that of U.S

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stocks, becoming the fund's leading core positionHong Kong stocks account for more than 35%, while A-shares exceed 20%, with U.Sstocks dropping to 26%. This indicates a distinct shift towards embedding more Chinese characteristics into the investment style of this globally-focused QDII fund.

Furthermore, the top three holdings of Wells Fargo's Global Consumer QDII by the end of December 2024 are all Chinese stocks, comprising Pop Mart, the leading stock listed in Hong Kong, Huayi Group, the second largest in A-shares, and Xiaomi Group in Hong KongThe fund manager’s strong emphasis on increasing allocations to consumer staples reflects the optimism regarding economic recovery, evidenced by the inclusion of Trip.com Group among its key investments, along with Maogeping, a recently listed cosmetics brand in Hong Kong.

Anticipating the Rise of the New Economy, QDII Fund Managers are Bullish on Policy Strengthening Expectations

Regarding the investment opportunities in China's tech and consumer sectors, QDII fund managers emphasize the evolutionary potential of quality assets.

According to Li Yaozhu, the manager of GF Global Tech QDII, the adoption and promotion of artificial intelligence (AI) is evolving and advancing towards specialized agency work

China's continuous breakthroughs in AI technology indicate a sustained evolutionary trajectory, particularly with advancements being made in AI-related tools and modelsAs these technologies empower vast data ecosystems, the internet companies that hold them are poised for strategic significance, leading to high confidence in key allocations within these sectors.

Qu Shaojie, manager of the Great Wall Global New Energy QDII, focuses on China’s automotive market, observing that the intelligent driving technology of major local manufacturers is maturingHe notes the increasing adoption of advanced features in affordable vehicle models, which will greatly benefit consumersThe interplay between core technologies in chips, software, and AI further integrates these innovations into the market

As intelligent driving edges closer to widespread deployment, the industry is expected to experience substantial growth opportunities by 2025.

In terms of positioning strategies related to the global consumer sector, Peng Chenchen, the manager of Wells Fargo's Global Consumer QDII, elaborated on her focus on identifying prospects in Chinese stocksShe anticipates a shift towards actively supportive fiscal policies by 2025, catalyzing growth in the Chinese consumer industry and expanding demand across various sectorsGiven this perspective, QDII funds are investing in consumer goods that will benefit from policies aimed at upgrading their offerings, particularly in the white goods and automotive sectorsWith rising performance expectations globally, travel and lifestyle improvements are further solidifying the attention on China’s tourism sector.