abc24 January 2024Global Research and Evidence LabChina Equity StrategyQ423 mutual fund position review: Pursuing defensiveness amid crowded trades unwindingMFs added electronics, healthcare, agriculture; cut electrical eq., telecom, F&BThe positioning changes of mutual funds (MFs) in Q423 echoed those in Q323. Electronics, healthcare and agriculture had the largest weighting gains in Q4, up 2.0/1.4/0.5ppt QoQ (Figure 1Mutual funds' sector weight changes (Q423 QoQ changes)). Riding on the global tech upcycle, electronics ranked among the top weighting gainers for two consecutive quarters. Healthcare, which is bottoming in the current cycle, also logged a weighting increase. On the flip side, the electrical equipment sector was the top weighting decliner for two straight quarters (Q423: -1.1ppt). Telecom equipment, which recorded one of the largest weighting declines in Q323, saw another 0.5ppt cut in Q4 (Figure 1Mutual funds' sector weight changes (Q423 QoQ changes)).MFs going more defensive amid the unravelling of crowded tradesBy end-Q423, MFs' weight of the ChiNext board increased, reversing from declines of the prior three consecutive quarters. Notably, MFs' weighting percentage of STAR board stayed on the rise since Q221, reaching 12.7% at end-Q423. By contrast, the weight of main board dropped in Q423. By sector, some stocks with crowded institutional holdings were facing positioning reduction pressure. For example, MFs' weight of electrical equipment fell further, and weight of Food & beverages (F&B) retreated further. Amid subdued market sentiment, a number of defensive and value sectors recorded weighting gains, including home appliances, coal, steel and non-ferrous metals.How did offshore investors position in Q423?After Rmb80.1bn in net outflow in Q323, northbound netted another Rmb59.5bn in outflow for Q4. As for weighting changes by sector, northbound moved largely in sync with MFs in Q423. Northbound added semis, tech hardware, utilities and healthcare, and cut capital goods, banks, software and F&B (Figure 25Q423 northbound net inflow by sector). In our All you need to know about northbound flow note, we argued that while northbound A-share ownership and turnover are not high, their frequent trading data disclosures have a significant impact on onshore investors' expectations. We think recovering market confidence and improving macro could draw back global investors. As some ETFs saw their trading volume soar towards end of trading day recently, some investors are debating whether the 'national team' has stepped in. In our All you need to know about the 'national team' note, we highlighted that the group tend to move against the market trend, implying potential downside protections. Meanwhile, we expect market confidence to gradually recover, as more favourable policies are set to debut and play out and macro data to recover.This repo...
