UBS has increased its holdings in several stocks including Contemporary Amperex Technology Co Ltd (300750.SZ) and Hongfa Technology Co Ltd (600885.SH) during the second quarter, becoming one of their top ten circulating shareholders. Following a recent period of volatile consolidation, the Shanghai Composite Index has reclaimed the 3900-point mark within the month, and a number of foreign institutions have recently voiced optimistic outlooks for the A-share market's trajectory. On Monday (August 17), all three major indices closed higher, with the Shanghai Composite finishing at 3982.65 points, up 1.41%, while the Shenzhen Component Index and the ChiNext Index gained 2.44% and 3.14% respectively. Total two-market turnover reached 2.39 trillion yuan, up 0.24 trillion yuan from the previous trading session.
"After nearly a month and a half of adjustment, the A-share market has essentially completed a round of 'deleveraging,' and the 'slow bull' rally is expected to continue," said Chen Mingkang, senior equity strategist at Bloomberg Intelligence. He noted that the current margin financing balance has returned to levels seen at the beginning of the year, with most sectors having cleared the "bubbles" accumulated in the earlier phase. According to the latest data from China Securities Data, as of August 14, the total margin balance stood at 2.67 trillion yuan, comprising 2.65 trillion yuan in margin financing and 25.987 billion yuan in short selling. This scale is close to levels seen in the first quarter of the year.
By sector, the technology track represented by AI remains the core allocation focus for foreign capital. "Based on client feedback, they remain optimistic about AI investment, and how to maximize returns through AI sector rotation is currently the most discussed topic," said Deng Zhijie, Chief Investment Officer for Emerging Markets at Deutsche Bank International Private Bank. The latest holdings data from foreign institutions also confirms that tech stocks continue to enjoy favor. As A-share companies release their interim results, the picture of foreign investors' recent "shopping spree" is becoming clearer. The report notes that UBS added to positions in stocks like Contemporary Amperex Technology Co Ltd (300750.SZ) and Hongfa Technology Co Ltd (600885.SH) in the second quarter, becoming their top ten circulating shareholders.
Foreign institutions say the A-share "slow bull" will persist. After entering August, the Shanghai Composite gradually recovered the 3900-point level, with the margin balance once achieving an eight-day consecutive increase (August 4-13), signaling a rise in market bullish sentiment. However, the margin scale still experienced slight fluctuations. According to Wind statistics, as of August 14, the margin balance was 2.67 trillion yuan, a decrease of approximately 1.8 billion yuan from the previous trading day, with both margin financing and short selling balances declining from the prior session.
In the view of multiple foreign institutions, the current overall leverage ratio in the A-share market is manageable, and positive factors are accumulating. Meng Lei, China Equity Strategist at UBS Securities, stated that overall, the current leverage ratio in the A-share market is not high. "We have noticed that the decline in margin financing balance in the A-share market has been very rapid recently," he said. Data shows that the current A-share margin financing balance is close to the level seen in mid-March. Throughout July, the balance fell from 3.01 trillion yuan at the start of the month to 2.59 trillion yuan at month-end, a decrease of over 410 billion yuan during the period.
Chen Mingkang believes that overall, the phased "deleveraging" in the A-share market is essentially complete, market volatility has decreased, and the upward driver has shifted from sentiment to fundamentals. Based on this, he holds an optimistic outlook for the A-share market in the second half of the year and believes the tech sector will continue to perform. Chen further mentioned that the adjustment of the A-share market from around the 4000-point level has entered its later stage, with the market now gradually stabilizing and recovering. The core support comes from two points: first, the market's core growth driver comes from the tech sector, with upward earnings revisions in the tech hardware sector, and the STAR Market and ChiNext boards playing a leading role in the A-share market; second, at the macro level, to achieve the annual economic growth target, the expectation of introducing stimulus-type fiscal policies remains significant. He said that overall, the A-share market will continue its "slow bull" rally supported by fundamentals, with significantly reduced volatility and notably converged risks.
At the capital flow level, Chen also noted that northbound funds have returned to a net inflow state, with the short-term outflow during the market's volatile phase concentrated in the IT hardware sector, mainly affected by short-term sentiment adjustments in global AI investment. "It is expected that as the RMB exchange rate remains stable, coupled with A-share earnings growth outperforming H-shares, and the momentum in markets like South Korea gradually slowing, foreign capital previously diverted to these regions will gradually flow back into A-shares," he said. Meng Lei stated that positive factors in the market are continuously accumulating, including multiple statements from regulators about maintaining stable capital market operations, large-scale self-purchases by some leading domestic quantitative private funds during the previous sharp market pullback, and active share buybacks by listed companies. Meanwhile, overseas, the rebound in global stock markets has boosted risk appetite among global investors.
Aggressive buying of tech stocks. Looking at actual buying actions, with the disclosure of interim reports, the latest holdings of foreign institutions are becoming clearer, with tech stocks being highly favored. In the second quarter of this year, Hongfa Technology Co Ltd (600885.SH) attracted concentrated allocations from several well-known foreign institutions. Goldman Sachs International, BNP Paribas, and UBS entered the company's top ten circulating shareholders list as new entrants, ranking seventh, eighth, and tenth respectively, with shareholdings of 16.5076 million shares, 15.0699 million shares, and 11.2708 million shares as of the end of the first half, representing 1.07%, 0.97%, and 0.73% stakes respectively.
This is not UBS's first purchase of Hongfa Technology Co Ltd (600885.SH). In the fourth quarter of last year, UBS and Merrill Lynch became new top ten circulating shareholders of the company, holding 15.8015 million shares and 12.124 million shares respectively by the end of last year, with stakes of 1.02% and 0.78%, ranking seventh and tenth. However, in the first quarter of this year, both institutions chose to "exit." Fundamentally, Hongfa Technology Co Ltd (600885.SH) is a leading company in power transmission and distribution equipment. Its latest interim report data shows that the company achieved both revenue and profit growth in the first half, with revenue of 11.022 billion yuan, up 32.05% year-on-year, and net profit attributable to the parent of 1.156 billion yuan, up 19.89% year-on-year.
Contemporary Amperex Technology Co Ltd (300750.SZ) also attracted foreign buying. According to disclosures, as of the end of the first half, UBS held 27.3666 million shares of Contemporary Amperex Technology Co Ltd (300750.SZ), making it the company's new seventh-largest circulating shareholder, with a stake of 0.64%. Some foreign institutions directly jumped to become the largest circulating shareholder of A-share companies in the second quarter. As of the end of the first half, Goldman Sachs held 706,900 shares of Fengguang Co Ltd (301100.SZ), a 0.8% stake, increasing its position by 222,600 shares during the quarter, having been the company's fifth-largest circulating shareholder at the end of the first quarter. Additionally, J.P. Morgan Securities and Barclays Bank also entered the top ten circulating shareholders of Fengguang Co Ltd (301100.SZ) in the second quarter, ranking fifth and eighth, with ending shareholdings of 362,700 shares and 302,100 shares, representing 0.41% and 0.34% stakes respectively.
Some tech stocks with strong price momentum are also attracting the attention of "smart money." In June, the stock price of Xiandao Jidian (600641.SH) surged sharply, hitting three consecutive daily limit-ups from June 30 to July 2, and reaching an intraday high of 50.99 yuan on July 3. From the beginning of June to the aforementioned price peak, the stock accumulated a gain of over 70% during the period. At that time, the company disclosed on the evening of July 1 that it was planning to increase capital in a subsidiary under its actual controller to gain control of the latter. Disclosures show that Goldman Sachs International added 9.765 million shares of Xiandao Jidian (600641.SH) in the second quarter, becoming its new fifth-largest circulating shareholder. During the quarter, UBS also became the company's seventh-largest circulating shareholder, holding 3.6317 million shares as of the end of the first half, a 0.39% stake. Prior to this, Morgan Stanley increased its holdings of Xiandao Jidian (600641.SH) by 2.6033 million shares in the first quarter, entering its top ten circulating shareholders list, ranking ninth.
Furthermore, several companies in areas such as semiconductors, humanoid robots, and new materials also received increased holdings from foreign investors in the second quarter, including Haozhi Electromechanical (300503.SZ), Fuman Micro (300671.SZ), Weihong Co Ltd (300508.SZ), etc. UBS, Goldman Sachs International, and Barclays Bank became their top ten circulating shareholders during the quarter.
"AI remains the core allocation." In Chen Mingkang's view, from a long-term perspective, the trend of market funds concentrating towards the tech sector has not reversed, and the total scale of funds flowing into this track is still increasing. AI remains highly favored by foreign capital. He mentioned that earlier, there were short-term concerns about the return on investment in AI, but overall AI investment continues to grow steadily, with domestic and international cloud giants increasing their related investments, and the fundamentals of the A-share AI supply chain remaining stable. "Looking ahead, as AI-related companies see earnings growth, the space for valuation repair will continue to open up. Meanwhile, the earnings expectations for tech hardware continue to rise, and the valuation divergence between software and hardware companies will narrow," he said.
Another market hotspot is the consumer sector. In Chen Mingkang's view, consumer confidence is currently weak overall, but with the implementation of stimulus policies, the consumer sector is expected to see a recovery. The K-shaped divergence seen previously, with tech stocks rising and consumer stocks falling, is expected to narrow in the second half of the year. In terms of allocation, he suggests that from a long-term perspective, the tech sector remains the core investment theme for the future. "In the short term, for the second half of the year, focus can be placed on sectors that have underperformed this year, waiting for the recovery of the consumer sector and the valuation repair opportunities brought by the narrowing of the market's K-shaped divergence," he said.
The valuation bubble in AI has also attracted global market attention at one point. In this regard, Deng Zhijie believes that from a global macroeconomic perspective, at the current stage, the main driver of US economic growth is AI and high technology, and the situation in the Eurozone is similar. "There are also views now that global AI investment should go 'beyond Magnificent 7.' Previously, capital investing in AI mainly targeted large AI model companies, but we believe that AI investment should also extend to all sub-sectors such as electricity and storage," he said. Deng also mentioned that from a valuation perspective, the high valuation bubble in AI has now subsided. "In May, we observed a sentiment bubble in AI with significant overbought conditions. As the market entered a correction over the past two months, the bubble has also faded, and the market outlook appears healthy now," he said.
"Our advice to investors is to invest from the perspective of the entire AI industry chain, meaning grasping the whole AI theme," Deng further elaborated. In his view, the most volatile phase of AI investment has passed. Earlier, investors worried that AI company valuations lacked earnings support, but with the release of some AI companies' second-quarter reports, the delivery of results has validated the rationality of high valuations. "It now seems that such concerns have been alleviated," he said.
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