According to a research report, the second quarter of 2026 saw northbound capital achieve net inflows of approximately 158 billion yuan, setting a new high for quarterly inflows in nearly two years and showing a marked improvement compared to the 2022-2025 period. The sectoral allocation is focused on technology and manufacturing, with electronics becoming the largest overweight sector, while communications, new energy, and machinery are also significantly overweight. In the long term, the deepening G2 global structure sees China and the US competing fiercely across industries. A repaired liquidity environment coupled with industrial advantages suggests northbound capital may usher in a "4.0 era," with global funds making a strategic allocation to Chinese assets. Key points from the report are as follows:
Northbound Capital Q2 Inflows Hit Near Two-Year Peak
In the second quarter of 2026, estimated net inflows of northbound capital reached around 158 billion yuan, the third-highest level since the program's inception, following the first quarter of 2023 and the fourth quarter of 2019, and marking a new high for quarterly inflows in nearly two years. For the first half of 2026, net inflows totaled roughly 141.8 billion yuan, showing significant improvement compared to the 2022-2025 period.
Sector Allocation Concentrates on Technology and Manufacturing
In the first quarter, northbound capital flowed heavily into the communications and power equipment sectors, each exceeding 19 billion yuan, while outflows from non-ferrous metals, automobiles, and non-bank financials each surpassed 10 billion yuan. The second quarter saw continued strengthening in allocations to the power equipment sector, with inflows exceeding 80 billion yuan. Simultaneously, the electronics, machinery equipment, and automobile sectors each received over 20 billion yuan in inflows, while some profits were taken in the communications sector. Currently, electronics has become the largest overweight sector, accounting for about 25% of the allocation, with the communications sector also being overweight. The manufacturing sector, particularly power equipment and machinery equipment, is significantly overweight. The allocation to the consumer sector has been declining in recent years and is now near a neutral weighting.
Long-Term Outlook Points to Potential "4.0 Era"
Concerns over fiscal sustainability combined with policy uncertainty are eroding US dollar credibility. Under a weak US dollar cycle, emerging markets stand to benefit, and a stronger renminbi enhances the attractiveness of Chinese assets. The 3.0 era (2022-2025) did not see massive net capital flows overall, but structural shifts began to take shape, with sector allocations continuing to lean towards manufacturing and technology. As the strategic competition between China and the US deepens comprehensively, especially in technology, future industries, and critical resources, the future global "G2" bipolar structure is becoming increasingly clear. In the new wave of global general-purpose technological revolution, China and the US are running neck and neck, with intense industrial competition. A repaired liquidity environment coupled with industrial advantages suggests northbound capital may usher in a "4.0 era," with global funds making a strategic allocation to Chinese assets.
Risk Factors to Consider
Risks include macroeconomic and policy volatility; uncertainty in the pace of global economic recovery; potential adjustments to accommodative policies if inflation rebounds beyond expectations or deflationary pressures intensify, which could affect equity valuations and profit recovery; the possibility that domestic counter-cyclical policy strength and timing may not meet market expectations, impacting market risk appetite and capital inflow pace; external environment uncertainties such as unexpected Federal Reserve policy adjustments, increased US dollar exchange rate volatility, or escalation of global geopolitical conflicts, which could affect domestic and international capital liquidity and risk appetite, impacting the stability of renminbi assets and A-share market trends; data completeness risks, as the movements of some institutional investors may not represent the overall market funding situation, institutional investor data disclosure has limitations, public information may be delayed or not updated promptly, and data calculations may contain statistical errors; historical experience and prediction model failure risks, as summaries and outlooks based on historical review face the risk of historical experience becoming invalid, quantitative models may have applicability limits, and historical data and fitting results do not guarantee future model prediction effectiveness.
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