Can We Still Chase the Light? Over 300 Funds See Returns Drop Over 30% Since July

The AI Sector's Sudden Reversal

The first half of 2026 saw China's AI sector experience an unprecedented boom, largely fueled by a perceived shortage in computing power. This surge propelled numerous public funds to exceptional returns, with some achieving over 100% growth. However, the landscape dramatically shifted in July, as over 300 funds, many with substantial holdings in AI-related stocks, witnessed their returns plummet by more than 30%.

A prime example is Fangzheng Fubon Core Advantage, managed by Wu Hao, which was the top-performing public fund in the first half of the year. Its net value saw a rapid decline, with its July returns falling approximately 37.38%. Similarly, funds managed by prominent manager Jin Zicai, also heavily invested in AI, experienced significant drawdowns. The article details how the top ten holdings of Fangzheng Fubon Core Advantage, including companies like Puran Stock and GigaDevice, saw their share prices drop by 30% to nearly 60% in July alone, erasing much of their earlier gains.

Divergent Views on AI's Future

The sharp pullback has ignited a debate among financial analysts and fund managers regarding the underlying causes and the future trajectory of the AI sector. Some, like SPD International, suggest the correction is primarily transaction-driven rather than a fundamental shift, attributing it partly to external market contagion from Korea's leveraged ET market and its ripple effects on A-shares and US tech stocks. They argue that concerns about computing power oversupply or storage price downturns do not necessarily signal an end to the long-term industrial trend of AI infrastructure.

Bosera Innovation Driven's manager, Qi Ning, and HSBC Jintrust Fund managers maintain an optimistic stance, believing the current downturn is a risk release for an overcrowded high-valuation sector, not a reversal of the broader AI industry trend. They point to accelerating commercialization of large models both domestically and internationally, with no systemic slowdown in tech capital expenditure. Conversely, more cautious voices, such as Industrial Securities Global Fund's Xie Zhiyu, warn against assigning excessively high long-term valuations to currently scarce components, drawing parallels to previous cycles where stock price corrections preceded fundamental shifts. Noah Innovation Driven's Zuo Shaoyi, while optimistic about AI hardware, acknowledges that current stock prices may already embed overly optimistic expectations for the next 2-3 years, and that supply shortages and price hikes are not sustainable indefinitely.

Fund Managers Adjust Strategies

In response to the market volatility and significant drawdowns, some fund managers have begun to rebalance their portfolios. The number of public funds with over 100% year-to-date returns has shrunk dramatically from 246 to just 11 by July 24th, indicating the widespread impact of the correction. Funds that managed to retain higher year-to-date returns did so by experiencing relatively smaller declines in July.

For instance, E Fund Supply-side Reform Mixed, managed by Yang Zongchang, revealed in its Q2 report that it had gradually reduced its holdings in certain stocks after their valuations surged. Yang also indicated a growing interest in high-quality companies in traditional industries, suggesting a strategic shift away from concentrated AI bets. Similarly, Noah Innovation Driven's Zuo Shaoyi, while maintaining a core strategy of investing in industry trends, emphasized the need for increased subjective agility in market timing to navigate the high volatility in tech stocks.