Chinese mutual funds made a significant strategic pivot in the second quarter of 2026, largely shedding consumer and pharmaceutical stocks in favor of AI hardware and domestic computing companies. This shift is exemplified by Zhang Kun of E Fund Management, a renowned "star manager" often associated with value investing and baijiu stocks. His flagship E Fund Blue Chip Select fund reduced its holdings in Kweichow Moutai by approximately 47%, Luzhou Laojiao by 52%, and both Wuliangye and Shanxi Fenjiu by over 70% each. This resulted in a more than 7 billion yuan ($1.53 trillion won) decrease in the fund's mark-to-market value across these four baijiu names in a single quarter. Instead, Semiconductor Manufacturing International Corp. (SMIC) and Dongshan Precision, an AI server components maker, entered the fund's top 10 holdings.
Local reports indicate that this large-scale portfolio overhaul by Zhang Kun, previously a staunch advocate for baijiu investments, is seen as a symbolic event reflecting a broader change in China's investment landscape. The move aligns with growing expectations for AI and semiconductor industries, driven by the emergence of high-performance AI models from companies like DeepSeek and Moonshot AI, alongside a national push for semiconductor self-reliance led by Huawei. These sectors are attracting substantial investment capital as related companies prepare for various listings.
Indeed, the broader trend among Chinese mutual funds shows a strong preference for technology. Top holdings now include AI-related companies such as InnoLight, Eoptolink, Cambricon, and Dongshan Precision, as well as semiconductor players like CATL, NAURA Technology, GigaDevice, and Yuanjie Technology. Concurrently, traditional consumer giants like Kweichow Moutai, Wuliangye, Luzhou Laojiao, and Shanxi Fenjiu, which once dominated lists of top fund holdings, have seen significant reductions, or in some cases, exited the top 10 entirely. For example, in the second quarter, Kweichow Moutai, Zijin Mining, Tencent Holdings, China Ping An, and Alibaba-W all exited the list of top ten public fund holdings. Zhang Kun also trimmed his Hong Kong stock allocation in E Fund Blue Chip Select from 46% to 25%, while maintaining positions in major tech firms Tencent and Alibaba in his solely managed E Fund Asia Select.
The shift comes amidst a challenging economic environment in China, with second-quarter growth reported at 4.3%, below market expectations and the lowest since late 2022. The property market remains depressed, and domestic demand recovery is trailing forecasts. This economic backdrop, combined with the rising promise of AI, appears to be compelling even value-oriented investors like Zhang Kun to recalibrate their strategies. While some fund managers express caution about elevated AI valuations, others, like Liu Gesong of GF Fund Management, are increasing AI exposure, arguing that rapid demand growth and stable supply structures make historical mean-reversion models less relevant for this industrial trend. Yang Weiwei of Great Wall Semiconductor Mixed Fund also noted that AI demand is supporting the semiconductor supply chain, favoring domestic computing capacity.
This reorientation is also reflected in the overall public fund market's top holdings. As of the end of the second quarter, the top ten public fund holdings were dominated by AI and semiconductor companies, including Zhongji Xuchuang ($260.528 billion), Xinyi Sheng ($131.721 billion), Cambrian ($115.359 billion), Ningde Times ($91.67 billion), Zhongwei Company ($83.612 billion), Beifang Huachuang ($78.653 billion), Zhaoyi Innovation ($78.115 billion), Haiguang Information ($78.115 billion), Dongshan Precision ($75.896 billion), and Yuanjie Technology ($65.241 billion). Notably, Zhongji Xuchuang and Xinyi Sheng, both optical module leaders, rose to the first and second largest holdings, respectively, while Ningde Times, previously the top holding, dropped to fourth.
