Zhongjin: The resilience of Chinese assets is evident, with dividends, domestic substitution, and domestic consumption as relative advantages.

Since the beginning of the year, the A-share market has seen increased volatility, with trading volume first rising and then falling. There have been two major variables affecting the market since the beginning of the year: DeepSeek altering the technology narrative, and frequent changes in tariff policies after Trump took office. The former became a catalyst for the A-share spring market, while the latter led to market volatility in April. Recently, stabilizing funds have entered the market, tariff expectations have fluctuated, and the market has stabilized and recovered. This report focuses on the funding situation in the stock market since the beginning of the year, with overall trading sentiment rising and then falling. During the rise in February and March, daily trading volume in the A-share market briefly exceeded 2 trillion yuan, but after adjustments, trading sentiment has cooled. In recent periods, it has fallen to around 1 trillion yuan per day. Chart: Since the mid-to-late March, market trading sentiment has marginally cooled, with daily trading volume in both markets falling below 1 trillion yuan Note: Data as of April 22, 2025 Data Source: Wind, Chaoyang Yongxu, CICC Research Department The prominent features of the funding situation in the A-share market since the beginning of the year include significant net buying by the "national team," fluctuations in margin trading balances, and capital flowing south into Hong Kong stocks. After September 24 last year, the market funding situation became more active, with public and private institutional funds playing a marginally decreasing dominant role in A-shares, and individual investors having a greater impact on the market. In the rising market triggered by DeepSeek in February and March, margin financing inflows into A-shares became one of the main incremental funds. Domestic funds have also flowed into Hong Kong stocks in large quantities (especially the increase in the proportion of institutional funds in Hong Kong stock allocations), which has become an important driving force for the previous rise in Hong Kong stocks and to some extent has also affected the A-share funding situation. Subsequently, during the period of market volatility, margin balances declined; however, at the same time, state-owned institutions such as China Investment Corporation substantially bought ETF stocks on dips, providing important liquidity support for the market. Specifically, looking at different types of investors: Chart: Increased volatility in the stock market funding situation since the beginning of the year, with improved performance under the support of stabilizing funds in April Note: 1) Funding flows are the sum of the first six items; 2) Data as of April 22 Data Source: Wind, CICC Research Department Chart: A relative equilibrium in the A-share funding situation in 2025 so far Note: 1) Other institutions estimate includes insurance funds and private equity funds. Since 2024, insurance fund data has not been disclosed monthly, and is currently omitted from other institutions; 2) Since August 16, 2024, data on the Shanghai-Hong Kong Stock Connect has not been disclosed. The data in the chart is as of April 23 Data Source: Wind, CICC Research Department 1) Domestic institutions: The "national team" significantly increased net purchases. Redemption pressures on actively managed equity funds have improved. In terms of actively managed equity funds, overall performance in the first quarter was good, with active equity balanced funds index achieving a quarterly return rate of 4.65%, outperforming the Shanghai and Shenzhen 300 index by more than 5 percentage points, the first time since 2022. With the improvement in the performance of actively managed funds, we estimate net redemptions of 83.1 billion yuan for actively managed equity funds in the first quarter, a significant improvement from the 261.4 billion yuan net redemptions in the fourth quarter, and the lowest quarterly net redemption scale in the past two years. In addition, the equity positions of actively managed funds remained high, but A-share positions declined while Hong Kong stock positions increased. As for stock ETFs, the scale in the first quarter was basically flat compared to the last quarter of last year. As of the first quarter of 2025, the scale of stock ETFs was 2.81 trillion yuan, with flows of +393/-1086/-387 billion yuan for Jan-March. Since April, in response to the tariff impact, state-owned financial institutions such as Central Huijin and China Securities Finance Corporation have continuously increased their holdings of ETFs to support market performance, with a net inflow of 199.4 billion yuan in April (as of April 24), with a significant portion of the inflow coming from broad-based ETFs. Since April, the significant increase in the scale of major broad-based ETFs has exceeded 200 billion yuan. From the perspective of new equity funds issued, concentrated issuance of science and technology innovation index ETFs took place in March, with a total of 50.1 billion shares of newly established equity funds, the second highest since July 2022. Subsequently, with market adjustments, the newly issued equity fund shares slightly decreased, averaging 38.5/41.8 billion shares per month in the first quarter/April (as of April 23). Overall, investors' willingness to allocate actively managed funds has stabilized, with stronger preferences for ETF investments. We expect that further recovery in the enthusiasm for actively managed fund investments may require more sustained excess returns. Chart: Net redemption scale of actively managed equity funds narrowing down Data Source: Wind, CICC Research Department Chart: Stock allocation of actively managed equity funds in the first quarter of 2025 increased by 0.6 percentage points from the previous quarter to 87.4% Note: Data as of March 31, 2025 Data Source: Wind, CICC Research Department Chart: The net value scale of stock ETFs in the first quarter of 2025 is basically flat compared to the previous quarter, reaching 2.8 trillion yuan Data Source: Wind, CICC Research Department Chart: Significant increase in broad-based ETFs in April, with a net inflow of 192.5 billion yuan Note: Data as of April 24, 2025 Data Source: Wind, CICC Research Department Chart: Significant increase in the scale of major broad-based ETFs since April Note: Data as of April 24, 2025 Data Source: Wind, CICC Research Department Chart: Slight decrease in the share of newly established equity funds in April Note: Data as of April 23, 2025 Data Source: Wind, CICC Research Department Chart: The equity fund index has risen to above the new fund cost index in nearly 12 months, but is still lower than the cost index in nearly three years Note: Data as of April 23, 2025 Data Source: Wind, CICC Research Department Chart: Historical experience shows that when the return rate of new capital turns positive, the issuance scale of public funds is expected to rebound slightly in the past 12 months and 36 months Data Source: Wind, CICC Research Department 2) Margin trading: Margin balances and trading activity declined from their peak in mid-to-late March. Before and after the Spring Festival, the technology sector and small and medium-cap stocks led the market, and margin balances have been rising since the end of January, from a low of 1.76 trillion yuan to 1.94 trillion yuan on March 20, reflecting a slight improvement in risk appetite from high net worth individual investors. Since then, A-share market fluctuations have been evident.Due to the impact of tariff policies in early April, the financing balance quickly declined, reaching a minimum of 1.79 trillion yuan. From the perspective of trading activity, the margin trading volume as a percentage of A-share trading volume increased overall from the beginning of the year to March, exceeding 10% at one point (compared to the average of 8.6% since 2024). Subsequently, margin trading transaction activity declined synchronously with the market, with the margin trading transaction proportion averaging 8.5% in April against the backdrop of shrinking A-share trading volume. At the industry level, the financing balance of most industries has declined since the beginning of the year, with a noticeable decline in the financing balance of the entire industry since April. As of April 23rd, the computer, electronics, and pharmaceutical and biotech industries had the largest monthly declines in financing balance, decreasing by 10.9/10.7/9.7 billion yuan respectively. The current financing balance remains at a relatively high level and overall risk appetite is not high.3 Structure configuration: In the first quarter, Hong Kong stocks received attention from domestic institutional investors, public funds, and foreign investors generally increased their positions in passenger cars, semiconductors, and other sectors. In the first quarter, active funds' holding configurations had the following characteristics: 1) Hong Kong stock allocation reached a new high. In recent years, under the relatively stable stock allocation of active equity funds, the allocation to Hong Kong stocks has increased while that to A-shares has decreased. The Hong Kong stock allocation had been below 4% long before 2019. In the second quarter of 2024, public funds rapidly increased their allocation to Hong Kong stocks, and as of the first quarter of 2025, the A-share/Hong Kong stock allocation ratio was 71.6%/15.8%. The allocation to Hong Kong stocks reached a historical new high again, benefiting from the first-quarter AI market, information technology, and non-essential consumption received more increases in position, Tencent and Xiaomi were respectively the first and tenth largest holdings of active equity funds. The attractiveness of Hong Kong stocks in terms of industry structure, returns, and valuation is highlighted, and we expect that there may still be room for further increase in the allocation to Hong Kong stocks. However, it should be noted that the current position limit for investing in Hong Kong stocks by public funds has been reached, and the holdings of Hong Kong stocks by foreign investors have not yet bottomed out. In the future, it is recommended to pay attention to whether the allocation of public funds to Hong Kong stocks can be further increased. 3) Opportunities for configuration in the passenger car and new energy sectors. Recently, passenger car sales have gradually rebounded, and several foreign investors have raised their industry profit expectations; at the policy level, the new round of tax cuts and fee reductions increases support for passenger cars and new energy vehicles, and the industry's business climate is expected to further improve. In terms of industrial structure, the passenger car and semiconductor sectors are worth watching.27%, the average upper limit is about 50%. At the industry level, actively managed equity funds in the first quarter mainly increased their holdings in industries such as automotive and electronics, while reducing their holdings in power equipment and communication industries. In the first quarter, benefiting from technological progress and the trend of domestic substitution, actively managed equity funds significantly increased their holdings in the electronics industry, with the position in the 1Q25 electronics industry rising by 1 percentage point to 19.2%, reaching a new historical high. Boosted by AI intelligence and industrial policy expectations, the automotive industry saw the most increase in holdings in the first quarter, with the position rising by 1.5 percentage points to 7.9% from the previous quarter. The power equipment sector decreased its position by 2 percentage points due to continuous capacity reduction and external policy risks in overseas operations, with a significant reduction in positions in photovoltaic equipment and batteries. The TMT sector saw a continuous differentiation, with a 1.7 percentage point decrease in communication positions. In terms of themes, investor risk appetite improved overall in the first quarter, with the market rapidly rising and high dividend positions decreasing for three consecutive quarters to 5.05% in 1Q25. In terms of northbound funds, they mainly increased their holdings in semiconductor, automotive, and joint-stock banks sectors by 1.0/0.8/0.4 percentage points respectively. They mainly reduced their holdings in power, communication equipment, and securities sectors by 0.6/0.5/0.3 percentage points respectively. In comparison, actively managed mutual funds and northbound funds both increased their holdings in automotive and semiconductor sectors, while decreasing their holdings in communication equipment and power sectors.Chart: Active equity-oriented funds in Hong Kong stocks further raised their positions, reaching a new high. Source: Wind, CICC Research Department Chart: 1Q25 public fund holdings: Increased positions in industries such as automobiles, electronics, and non-ferrous metals, while reducing positions in power equipment and communications. Note: Data is up to March 31, 2025. Source: Wind, CICC Research Department Chart: Public funds increased positions in semiconductors, chemical pharmaceuticals, and passenger cars in the first quarter; reduced positions in communication equipment, photovoltaic equipment, and batteries. Source: Wind, CICC Research Department Chart: In the first quarter, northbound funds' holdings in industries such as semiconductors, passenger cars, and joint-stock banks increased significantly. Note: Data is up to March 31, 2025. Source: Wind, CICC Research Department Chart: Overall, the sector preferences of public funds and foreign funds in specific industries are quite similar, with public funds preferring semiconductors and liquor, while foreign funds prefer white goods. Source: Wind, CICC Research Department Chart: Foreign funds and public funds both increased positions in passenger cars and semiconductors in the first quarter, while reducing positions in communication equipment and power, with significant differences in components and optical electronics. Source: Wind, CICC Research Department The resilience of Chinese assets is evident, and market trading sentiment is expected to improve. Since April, under the impact of US tariff policies, A-shares have fluctuated, with state-owned funds such as China Investment Corporation playing a key role. In a highly uncertain external environment, we expect short-term market risk appetite to continue to fluctuate, but in the medium term, given the recent Central Political Bureau meeting explicitly stating "responding promptly to changes in the situation and introducing incremental reserve policies, strengthening unconventional countercyclical regulation," we believe that listed companies' fundamentals may have certain resilience. Currently, market valuations are quite attractive, with the equity risk premium and dividend yield of the Shanghai and Shenzhen 300 at historical highs. The technology narrative and geopolitical narrative are undergoing positive changes, and market valuations still have the potential for improvement. On the funding side, as residents' demand for financial asset allocation rises, with relatively scarce high-yield assets, the influence of individual investors on A-shares is once again on the rise, and mainland institutional funds continue to flow south to Hong Kong stocks, a new change in the A-share funding situation in the past six months that requires attention to the medium-term impact of new trends. In terms of allocation, in the context of high external uncertainty, dividend sectors, domestic substitutes, and domestic consumption themes will be relatively advantageous; in the medium to long term, the advantage of the dividend style is once again rising, and the high prosperity of the AI industry is still in its early stages. We believe that in the future, profits are expected to gradually materialize from infrastructure such as computing power, cloud computing, to application aspects, still an important theme in the medium term. This article is reprinted from the "Zhongjin Insight" WeChat official account; GMTEight Editor: Chen Xiaoyi.