Foreign capital has been actively increasing its exposure to A-shares since the second quarter of this year. Data shows that by the end of Q2, the total market value of northbound trading through the Shanghai and Shenzhen-Hong Kong Stock Connect programs exceeded 3 trillion yuan for the first time. The investment focus and portfolio adjustments of international institutions highlight the growing appeal of China's artificial intelligence (AI) supply chain.
Chen Mingkang, a senior equity strategist at Bloomberg Intelligence, noted that the upward momentum in Chinese equities is likely to continue. He attributed the increased demand for A-share allocation from foreign investors to the combination of AI industry opportunities and the resilience of the renminbi exchange rate during the second quarter. As of August 2, a total of 572 foreign institutions had conducted 4,161 research visits to A-share listed companies this year. Among them, 17 institutions were particularly active, each carrying out more than 50 visits. Specifically, the overseas well-known fund company Point72 led the pack with 111 visits. Other highly active institutions included Goldman Sachs, Bank of America, JPMorgan Chase, Citibank, and Nomura Securities. Their research covered leading companies in the domestic technology supply chain and high-growth stocks, such as Canadian Solar, JinkoSolar, Orbbec, and Zhongji Innolight.
From a sector perspective, semiconductors, automation, computing hardware, and innovative medical care were the primary areas of focus for foreign institutional research. Additionally, sectors like consumer electronics and solar photovoltaic also attracted considerable foreign interest.
The breadth of foreign institutional research is increasingly translating into deeper holdings. As A-share companies release their 2026 interim reports, the latest major holdings of Qualified Foreign Institutional Investors (QFII) are coming to light. Based on the disclosed 2026 interim reports, QFII appeared on the list of top ten circulating shareholders for 38 stocks by the end of Q2, with a combined market value of 17.029 billion yuan. Compared to the same metric in the Q1 report, QFII made new investments in 19 of those 38 stocks during Q2, with a total holding value of approximately 13.133 billion yuan. Notably, a single stock, Contemporary Amperex Technology Co Ltd (CATL), accounted for over 10 billion yuan of this new investment. The QFII holdings also exhibited a clear trend toward "high concentration." At the end of Q2, the top five QFII holdings by market value among the 38 stocks were CATL, Hongfa Technology Co Ltd, L & K Engineering Co Ltd, Lead Intelligent Equipment Co Ltd, and China Shipbuilding Industry Group Gas Co Ltd. For example, in its Q1 report, Hongfa Technology had only one QFII among its top ten shareholders, holding approximately 20.2981 million shares. By the Q2 report, four QFII were on the list, holding a combined total of about 62.0959 million shares.
A research report from UBS suggested that AI-related trade is a major driver of China's foreign trade growth, contributing nearly half of the increase in imports and exports in the first half of the year. This strong performance is more driven by price increases than by volume, indicating a tight market supply. Li Changfeng, head of market strategy at AllianceBernstein Fund, argued that for the volatile tech hardware sector, low valuations can sometimes correspond to peak earnings expectations. In this context, he emphasized the importance of targets with high certainty of earnings delivery and solid fundamental support. "While China still faces challenges in certain high-end AI hardware areas, the industrial spillover effect is providing clear support for the domestic tech sector, with the storage segment being a particularly typical example," Li said. Citing data, he noted that China's share of global DRAM production capacity is steadily rising, increasing from 10% in 2019 and expected to reach 24% by 2026, making the growth of the domestic storage supply chain one of the core themes in the A-share market this year.
"Chinese companies have a significant advantage in promoting practical AI applications and expanding use cases, supported by both a massive domestic market and a strong manufacturing base with a complete supply chain system," said Zhu Feng, JPMorgan Chase's Chief China Economist and Head of Greater China Economic Research. "JPMorgan's research shows that global AI and semiconductor capital expenditure is providing effective support for China's exports and high-end manufacturing." Xiong Wei, UBS's China internet industry analyst, stated that in the long term, China's large language models are not only performing well but also becoming increasingly cost-competitive in the global market. UBS remains optimistic about the competitiveness and commercialization potential of Chinese large model companies.
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