Since the second quarter of this year, China Internet technology stocks and Hong Kong technology stocks have been hit hard by changes in the policy and regulatory environment. Among them, China's Internet 50 Index and Hang Seng Technology Index have fallen more than 40% and 30% respectively since the second quarter, both of which have entered a technical bear market.

In this context, what changes have taken place in the asset allocation of Chinese stocks by foreign institutions? It may be evident that we combine the second-quarter position data disclosed by overseas fund companies in mid-late August.

According to CITIC's sample statistics of 20 major overseas fund companies with large holdings of Chinese stocks, a reporter from China Fund Daily combed out the eight highlights of the allocation of global TOP funds to China in the second quarter.

Point 1: positions in US-listed US-listed stocks have fallen sharply, while positions in Hong Kong stocks have increased significantly.

Statistics show that in the second quarter, sample fund companies held a total of US $621.4 billion in the top 20 Chinese stocks (including A shares, as well as Chinese stocks listed in Hong Kong, Taiwan, the United States and other places), which was basically the same as in the first quarter.

Judging from the market distribution of stock positions, the heavy positions of major overseas mutual funds in US stocks, Hong Kong stocks and A shares in the second quarter were US $182.35 billion, US $391.6 billion and US $44.62 billion respectively, with month-on-month changes of-US $51 billion, US $43.84 billion and US $6.41 billion, respectively. Among them, the proportion of heavy holdings in US-listed Chinese stocks fell sharply by 8.3% to 29.3%, while heavy holdings in Hong Kong stocks and A-share markets increased by 7.0% and 1.0% respectively from the previous month to 63.0% and 7.2% respectively. The Hong Kong stock market became the main source of increment in the second quarter.

CITIC believes that the final amendment to the Foreign Company Accountability Act, the tightening of domestic regulatory policies, and the Archegos Capital default of hedge funds are the main reasons why overseas major funds reduced their positions in US-listed Chinese stocks in the second quarter.

Point 2: the asset allocation of most major overseas funds in China has declined month-on-month.

Statistics show that the allocation of Chinese assets by most major overseas funds declined month-on-month in the second quarter.

Among the top five overseas fund companies, JPMorgan Chase, Black Rock, Vanguard and Capital Group continued to occupy the top five positions in Chinese stocks by 4.6 per cent,-7.3 per cent,-6.6 per cent and 13.1 per cent, respectively, to $82.6 billion, $73.5 billion, $71.81 billion and $40.67 billion in the second quarter. JPMorgan Chase ranks first in order, surpassing Black Rock.

In addition, the size of Chinese stock holdings in Baillie Gifford, one of the head managers, surged 37.3% in the second quarter from the previous quarter to $42.31 billion, making it into the top five for the first time.

Point 3: the new funds in the growth sector are mainly allocated to medicine, science and technology.

At the level of the first-tier industry, there was a significant divergence in the allocation preference of the growth sector in the second quarter, with the main allocation of new funds in medicine and technology, with heavy holdings rising to $574.4 and $16.47 billion respectively, with a month-on-month growth rate of 41 per cent and 34.3 per cent respectively.

The market value of heavy holdings in optional consumer and communications services sectors has changed relatively steadily, down 2.6% and 3.5% respectively from the previous month, but the proportion of heavy holdings in the sector is still high, at 42.8% and 24.7%, respectively, compared with 12.4% in the financial sector.

Point 4: there is a significant increase in the allocation of industries and public utilities in the traditional economic sector.

At the level of first-tier industry, industries and public utilities in the traditional economic sector are favored by overseas funds.

In the second quarter, overseas funds significantly increased the allocation of industrial and utility sectors in the traditional economy, with heavy holdings of US $13.07 billion and US $9.32 billion, respectively, representing a month-on-month growth rate of 98.5 per cent and 63 per cent respectively. Among them, newly listed companies Full Truck Alliance Co. Ltd. Group, DiDi Global Inc. Travel, and new energy theme investments such as the Ningde era have attracted the attention of overseas funds, which have become the main reasons for the significant increase in the amount of heavy holdings in the industrial sector.

Previously, the amount of heavy holdings in the financial and pro-cyclical energy and raw materials sectors, which had been continuously increased by overseas funds, fell significantly, falling 15.1%, 10.1% and 16.5% respectively from the previous month to $76.87 billion, $3.46 billion and $1.01 billion.

Point 5: all sub-sectors of big finance have been reduced.

At the secondary industry level, various sub-sectors of the health care industry are obviously favored by overseas funds, of which the heavy holdings of health care equipment and services, pharmaceuticals, biotechnology and life have increased significantly by 204.5% and 37.6%, respectively, to $2.52 billion and $54.92 billion.

The sub-sectors of the optional consumer industry are obviously divided, among which the heavy holdings in the auto and auto parts, consumer durables and clothing, retail and consumer services subsectors have changed by 77.9%, 67.7%,-8.4% and-26.0%, respectively.

Divisions also appeared within the information technology industry subsector, in which the heavy holdings in the technical hardware and equipment, semiconductor products and equipment, and software and services subsectors changed by 59.3%, 44.6% and-20.5%, respectively, to US $7.77 billion, US $6.29 billion and US $2.41 billion.

Previously, various sub-sectors of the large financial industry favored by overseas funds were reduced, with banking, insurance, comprehensive finance and real estate heavy holdings falling sharply-6.3 per cent,-24.3 per cent,-77.2 per cent and-28.3 per cent, respectively, to $461.4, $303.7, $3.6 and $4.24 billion.

On the other hand, various sub-sectors of the industrial industry were generally increased by overseas funds, and the amount of heavy holdings in the transport, capital goods, commercial and professional services sub-sectors increased by 182.9%, 84.6% and 18.5% respectively compared with the previous month.

Point 6: Internet leader configuration differentiation, Meituan, BABA (H), Tencent are favored

At the level of corporate stocks, antitrust events continued to ferment in the second quarter, superimposed by the landing of the Foreign Company Accountability Law, resulting in an obvious differentiation in the allocation of Internet leaders by overseas institutions. Pinduoduo, JD.com and Baidu, Inc. were underallocated by overseas funds, while Meituan, BABA (H) and Tencent were favored.

Specifically, excluding the factors affecting stock prices, despite being suppressed by stricter industrial regulatory policies, the actual additional allocation of overseas funds to Tencent, BABA (H), and Meituan reached 3.04 billion US dollars, 13.98 billion US dollars, and 14.22 billion US dollars respectively; while Pinduoduo, JD.com, and Baidu, Inc. actually reduced their allocations to 1.45 billion US dollars, 1.79 billion US dollars, and 3.75 billion US dollars respectively.

In addition, Li Ning Co. Ltd. and Anta, who benefited from the rise of the national tide in the consumer sector, and Byd Company Limited, the leader of the new energy vehicle industry chain, were favored by overseas funds. In the second quarter, the amount of heavy holdings increased by 140.3%, 95.1% and 267.8%, respectively, to $11.86 billion, $2.42 billion and $5.63 billion. Excluding the factors affecting the stock price, the actual additional allocation also reached $2.57 billion, $630 million and $3.47 billion.

In the pharmaceutical sector, the actual additional amounts of Wuxi Biologics, INNOVENT BIO, Mindray Medical and Ayre Ophthalmology reached 660 million US dollars, 930 million US dollars, 720 million US dollars and 800 million US dollars respectively.

In the banking sector, the actual reduction amounts of China Merchants Bank, Bank of Communications, China Construction Bank Corporation and Industrial and Commercial Bank of China are 1.13 billion US dollars, 690 million US dollars, 250 million US dollars and 330 million US dollars respectively.

Point 7: among the A-share positions, consumption continues to dominate.

In the A share mark, consumption continues to dominate, among which Changjiang Electric Power, Ningde era and Gree Electric Appliances are obviously added.

CITIC counted the top ten A-share companies with heavy positions in overseas TOP funds in the second quarter, of which seven were heavy companies in the first quarter, of which consumer companies still dominated, accounting for five of the top ten, mainly concentrated in the liquor and home appliance sectors, with a total holding amount of US $22.5 billion.

Pharmaceutical leader Hengrui Pharmaceuticals and Mindray Medical heavy positions, which just entered the top ten heavy positions in the second quarter, reached $19.9 and $1.72 billion respectively. In addition, Changjiang Electric Power and the power battery leader Ningde era also entered the eyes of investors, with heavy holdings of US $2.3 billion and US $2.07 billion respectively.

Point 8: the top ten active funds add new energy and Internet finance, and favor newly listed stocks

CITIC selected ten actively managed funds that are more concerned by the market, and explored the changes in their positions in the second quarter, showing that individual stocks in the new energy and Internet financial sectors were generally increased by institutions.

In the second quarter, Jinglin increased its holdings of 159.4 and 162000 shares of 360 DigiTech Inc and Futu Holdings Limited respectively; Hillhouse increased its holdings of 73.2 and 476,000 shares of NIO Inc. and XPeng Inc. respectively; and Qiaoshui increased its holdings of 1.023 million shares and 236000 shares of Li Auto Inc. and Daqo New Energy Corp respectively.

In addition, newly listed stocks in the second quarter also attracted the attention of overseas funds. For example, DiDi Global Inc. was allocated by Jinglin, Hillhouse and Fidelity in the second quarter, and KANZHUN LIMITED was also heavily bought by Jinglin and Hillhouse.

Under the risk of regulatory policy, the allocation of the Internet and education plate is obviously differentiated. In the second quarter, Jinglin increased its holdings in New Oriental Education & Technology Group and Gaotu Techedu Inc. Group by 708000 shares and 149000 shares respectively, while UBS reduced their holdings by 3.087 million shares and 5.044 million shares respectively.

In addition, Bilibili Inc. of the Internet entertainment plate was increased by Jinglin, Gao Yi and JPMorgan Chase & Co, but was reduced by Kaisibo and SOROS FUND. Internet e-commerce leaders are often reduced by institutions, such as Fidelity reduced its holdings of Pinduoduo, JD.com and BABA (BABA.N) to 4.892 million shares, 7.278 million shares and 39.914 million shares respectively in the second quarter. Gao Yi also reduced his holdings of 600000 shares and 1.072 million shares of Pinduoduo and BABA (BABA.N) respectively.