As the first-quarter earnings season for listed companies concludes, the portfolio adjustment strategies of foreign investors have become clear.
According to Wind data, by the end of the first quarter of 2026, foreign capital appeared among the top ten circulating shareholders of 1,518 A-share listed companies. Their combined holdings amounted to 11.525 billion shares, with a total market value reaching 194.67 billion yuan, representing significant increases in both the number of shares held and their market value.
Concurrently, several prominent international investment banks, including Morgan Stanley and UBS Securities, have recently reiterated their bullish stance on China. They argue that robust corporate earnings recovery will provide solid support for the ongoing market rally and explicitly favor investment opportunities in core sectors such as high-end manufacturing, self-sufficient technology, and upstream energy.
**QFIIs Heavily Invest in New Positions Including Zijin Mining** Data from Wind shows that by the end of Q1 2026, foreign capital was present among the top ten circulating shareholders of 1,518 A-share companies, holding a total of 11.525 billion shares valued at 194.67 billion yuan.
Regarding new positions, Wind data indicates that by the quarter's end, QFIIs initiated positions in 1,211 individual stocks. Among these, 12 stocks had a holding value exceeding 1 billion yuan each. They are: Zijin Mining Group Company Limited (601899), Suzhou Tfc Optical Communication Co.,Ltd. (300394), Zhongji Innolight Co.,Ltd. (300308), Luxshare Precision Industry Co.,Ltd. (002475), Inner Mongolia Xingye Silver&Tin Mining Co.,Ltd. (000426), Jiangsu Zhongtian Technology Co.,Ltd. (600522), Wanhua Chemical Group Co.,Ltd. (600309), Yuanjie Semiconductor Technology Co.,Ltd. (688498), Boe Technology Group Co.,Ltd. (000725), Guangdong Songfa Ceramics Co.,Ltd. (603268), Shenzhen Mindray Bio-Medical Electronics Co.,Ltd. (300760), and Sany Heavy Industry Co.,Ltd. (600031).
Ranked by holding value, Zijin Mining Group Company Limited held the top position. By the end of Q1, the stock was newly and heavily invested in by the Abu Dhabi Investment Authority, with a holding value of 4.626 billion yuan, making it the company's sixth-largest circulating shareholder. Financial reports show the company achieved a net profit of 20.079 billion yuan in Q1, a year-on-year increase of 97.5%, setting a historical high for the period.
In second place was the AI computing power concept stock, Suzhou Tfc Optical Communication Co.,Ltd. By the end of Q1, it received new investments from two QFIIs: Morgan Stanley International Limited and UBS Group AG, with a combined holding value of 3.709 billion yuan.
The optical module leader, Zhongji Innolight Co.,Ltd., received a new investment from Morgan Stanley International Limited in Q1, with a holding value of 3.698 billion yuan, ranking third.
In terms of portfolio breadth, seven foreign institutions held positions in over 100 stocks each. They are: UBS Group AG (526 stocks), The Goldman Sachs Group, Inc. (525 stocks), Goldman Sachs International (369 stocks), JPMorgan Securities Ltd. (364 stocks), Barclays Bank PLC (346 stocks), Morgan Stanley International Limited (313 stocks), and CITIC Securities Asset Management (Hong Kong) Limited - Client Funds (152 stocks).
UBS Group AG held 36 stocks with individual holding values above 100 million yuan. Its top three holdings by value were Guangdong Songfa Ceramics Co.,Ltd., Yuanjie Semiconductor Technology Co.,Ltd., and Suzhou Tfc Optical Communication Co.,Ltd. Its largest holding was Guangdong Songfa Ceramics Co.,Ltd., with 15.7585 million shares, an increase of 1.9156 million shares from the previous period, making it the second-largest circulating shareholder with a circulating market value of approximately 1.768 billion yuan.
Goldman Sachs, through its two QFII entities The Goldman Sachs Group, Inc. and Goldman Sachs International, collectively held 894 stocks, initiating 525 new positions and adding to 219 existing ones, with a total portfolio value exceeding 25 billion yuan. Its top three holdings by value were OmniVision Technologies, Inc., Inner Mongolia Xingye Silver&Tin Mining Co.,Ltd., and Yongding Co., Ltd. Its largest holding remained OmniVision Technologies, Inc., with 8.1245 million shares, ranking as the seventh-largest circulating shareholder with a circulating market value of approximately 772 million yuan.
**Foreign Institutions Bullish on A-Share Performance** Recently, several foreign institutions have expressed optimism about the Chinese stock market.
In their latest report, Morgan Stanley's Chief China Equity Strategist, Laura Wang, and her team forecast a moderate rally in the Chinese market by the second quarter of 2027. They cite improving corporate earnings, China's growing dominance in the global upstream supply chain, and a stronger Renminbi as key drivers. Morgan Stanley favors A-shares over offshore markets and recommends a thematic stock-picking strategy over passive index investing.
Furthermore, against the backdrop of accelerating AI and energy capital expenditure cycles, China's export growth is expected to strengthen further; the Renminbi is anticipated to appreciate against the US dollar; and price competition among large internet platform companies is believed to have peaked. Based on this, Morgan Stanley expects a moderate improvement in the profit outlook for Chinese companies, greater dominance for Chinese firms in the global high-end supply chain, and potential marginal re-rating of valuations.
Morgan Stanley's newly set target prices for Q2 2027 are: 28,400 for the Hang Seng Index, 91 for the MSCI China Index, 9,900 for the Hang Seng China Enterprises Index, and 5,400 for the CSI 300 Index, implying upside potential of 8%, 12%, 11%, and 11% respectively. However, Morgan Stanley cautions that short-term volatility may still occur, with market trends likely becoming clearer during or after this summer.
UBS Securities China Equity Strategist Meng Lei believes that the momentum for further upside in the A-share market in the next phase will be driven by earnings growth, with multiple key indicators pointing to a recovery in A-share profit growth. Meanwhile, the consensus expectation for the CSI 300 Index's 2026 year-on-year earnings growth has been continuously revised upward from 10.2% at the end of last year to the recent 15.9%, indicating a bottom-up improvement in profit expectations.
Regarding specific sectors, Morgan Stanley stated it continues to favor the A-share market over offshore markets, as the A-share market is more concentrated with high-end upstream manufacturing and hard-core technology companies.
In terms of sector preferences, Morgan Stanley strongly recommends industries centered on upstream assets, such as materials, industrials, and energy. These sectors are less impacted by the disruptive effects of the AI supercycle and are seeing sustained growth in global market share, especially as energy efficiency regains priority. Additionally, Morgan Stanley is optimistic about the theme of technological self-sufficiency, represented by semiconductors; maintains a moderate allocation to financials (insurance, exchanges) and high-dividend stocks; and retains an overweight rating on real estate and consumer staples.
Deutsche Bank Private Bank's Chief Investment Officer for Emerging Markets, Jason Deng, recently noted that following the easing of Middle East conflicts, sentiment towards Chinese equities has turned more optimistic. Regarding China's economy, factors including technological advancement, improved industrial profits, and a mild recovery in imports all indicate increasing economic momentum. Given stable Renminbi exchange rate expectations and a recovering economic foundation, investors should gain Renminbi exposure by positioning in A-share technology and energy sectors.
Jason Deng believes investment focus in the Chinese market should concentrate on export sectors such as electric vehicle batteries, renewable energy equipment, and related infrastructure. In the short term, upstream energy companies are favored over downstream ones as they benefit directly from rising energy prices and inflation. However, once the situation stabilizes, the energy sector is expected to present more cyclical opportunities.
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