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Tuchong Creative/Photos provided by An Zhongwen/Table creation by Zhai Chao/Graphics

Securities Times reporter An Zhongwen

Against the backdrop of increasing volatility in the U.S. stock market, many public QDIIs have seen a situation where they have achieved nothing.

Securities Times reporter noticed that in the recent adjustment of the US stock market, many QDII funds with leading performance in the previous period fell below the par value of 1 yuan again, and some even fell back to two years ago. The sharp decline in the performance of these QDII funds is largely related to the fact that these funds are too heavily invested in US stocks or that the US stocks were at a high point when they were built.

Many fund company personnel believe that with the increasing expectations of a Fed rate cut and a significant decrease in the pressure on the RMB exchange rate to depreciate in the second half of the year, the stock market may usher in a rebalancing opportunity and the pressure on northbound capital outflows is expected to ease.

Some QDII Funds

Net value drastically declined

The recent high-level volatility in the U.S. stock market has caused many fund managers who recently “increased their holdings” in U.S. stocks to work in vain.

Wind data shows that the performance of many previously leading QDII funds has fallen sharply, with the net value of more than 10 funds falling by more than 10% in one month. Among them, Jianxin Emerging Markets Hybrid QDII, which has been in the top three performance rankings many times this year, has fallen by more than 17% in the past month, causing this 13-year-old fund to fall below the 1 yuan par value again, and the current net value is about 0.95 yuan. In addition, after regaining the 1 yuan par value in March this year, the net value of E Fund Asia Select QDII managed by top fund manager Zhang Kun has fallen below the 1 yuan par value again due to the sharp fluctuations in the US stock market in the past month.

In addition, a QDII fund under Dacheng Fund, which once ranked first in the year, has seen its performance ranking drop significantly after the adjustment of the US stock market in the past month, and the net value of the fund has even returned to the level of March 2023; and a QDII fund under Huabao has returned to the level of January 2023 due to the sharp drop in heavily-weighted stocks such as Nvidia. In addition, the net value of many QDII funds has returned to the level of two years ago.

The sharp decline in QDII fund performance has also led to significant changes in the current performance rankings. According to the latest data, many of the public QDII products with the best performance are gold-themed QDIIs. For example, China Universal Gold, E Fund Gold, Harvest Gold, and Noah Gold have annual returns of 18.46%, 18.18%, 18.17%, and 17.41%, respectively.

Excessive pursuit of US stocks

Leading to increased risk

It is worth noting that many QDII funds were originally diversified strategy funds, and the reason for the sharp fluctuations was excessive investment in a single track of US stocks.

In the context of performance rankings, many QDII fund managers are more flexible in asset allocation, greatly downplaying the risk characteristics of fund products stipulated in the fund contract. Take Jianxin Emerging Markets Hybrid QDII as an example. As of the end of June this year, this fund, which was supposed to have the largest position in emerging markets, instead allocated up to 54% of its positions to the U.S. stock market. In addition, among the positions disclosed by Guofu Asia Opportunities QDII Fund under Guofu Fund at the end of the second quarter, the U.S. stock position accounted for more than 33%, and the core holdings were all U.S. technology giants such as artificial intelligence and semiconductor chips.

Obviously, some products have jumped out of the constraints of the fund contract and made the U.S. stock market their largest position, which highlights the over-enthusiasm of fund managers in chasing the U.S. stock market. The sharp decline in QDII fund performance also reflects the follow-up status of many QDII fund managers in their operations in the U.S. stock market.

Take a QDII fund under a Shanghai fund company as an example. At the end of June 2023, the fund's US stock position accounted for 42%, and the Hong Kong stock position accounted for 35%. By the end of June 2024, the fund's US stock position accounted for 81%, and the Hong Kong stock position accounted for only 1.3%. In other words, after the US stock market continued to rise, the above fund manager nearly doubled the increase in US stock positions in the past year, which also caused the fund, which was originally relatively balanced in Hong Kong and US stocks, to become a fund with a single US stock market.

Northbound Funds

Outflow pressure may weaken

Regarding the changes in overseas market styles, some fund managers believe that this may reduce the pressure of northbound capital outflows.

Morgan Stanley Fund officials pointed out that the current overseas market is generally in a risk-averse mode. The Federal Reserve's interest rate meeting stated for the first time that a rate cut in September is an option. The impact of U.S. inflation factors has declined, and the downward trend in employment is more worthy of attention. The U.S. manufacturing PMI further contracted from 48.5 in June to 46.6 in July. The latest non-farm payrolls data was significantly lower than expected, and the unemployment rate rose to 4.3%. Against this background, U.S. stocks have become more volatile, the U.S. dollar index has fallen sharply, and the probability of a rate cut by the Federal Reserve in September has greatly increased. The key lies in the extent of the rate cut. Some industry insiders expect it to be no less than 75 basis points this year.

The above-mentioned fund personnel emphasized that the volatility of overseas stock markets has increased, and A-shares will inevitably be affected to a certain extent. However, it should also be noted that due to the relatively weak domestic economy, investors' expectations are already relatively sufficient. Coupled with the downward trend of overseas margins and the convergence of interest rate differentials between China and the United States, the pressure of net outflow of northbound funds may be alleviated. From an industry perspective, some areas that benefit from the Fed's interest rate cuts, such as innovative drugs and gold, are expected to benefit. At the same time, directions with stable fundamentals and policy support, such as home appliances and utilities, will maintain good relative returns. In the medium term, we continue to be optimistic about the semiconductor and military industries with improved prosperity.

China Europe Fund believes that with the increase in the expectation of interest rate cuts by the Federal Reserve in the second half of the year and the significant reduction in the pressure on the RMB to stabilize the exchange rate, the potential space for policy is expected to increase. The market expects that A-shares will still be dominated by structural market conditions, and the index's rebound height may be limited. The short-term performance of structural market conditions will be reflected in the convergence of sector valuation differences. As the direction of economic improvement is gradually becoming clear, the market's decline means that the buying point is approaching again, and many medium- and long-term directions have re-exposed allocation opportunities.