Value-focused Chinese fund managers suffer losses after shifting to volatile AI stocks
Several prominent Chinese fund managers who switched from consumer stocks to technology and AI-related shares in the second quarter saw their funds' net asset values decline in July. The downturn was driven by a sharp pullback in mainland-listed tech stocks, particularly chipmakers and optical transceiver manufacturers. The reversal highlights the risks of chasing hot sectors even for seasoned value investors.
The July downturn coincided with the steepest monthly fall for mainland-listed technology shares, reflecting a worldwide retreat from AI bets driven by concerns over returns on cloud infrastructure. The managers' late pivot, motivated by a fear of missing out, likely placed their purchases near the market's apex.
Liu Yanchun's Great Wall Invesco fund suffered a 28% value drop in July after adding optical transceiver maker Zhongji Innolight and Konfoong Materials, while cutting consumer and pharmaceutical stakes. Zhang Kun's flagship E Fund vehicle lost 1.2% following his second-quarter AI shift. Meanwhile, the consumer stocks they had exited saw a price recovery.
This episode could undermine retail investors' trust in actively managed funds, particularly those marketed on value-investing principles. The herd behavior may prompt closer regulatory scrutiny of portfolio concentration and risk management. Individual shareholders in these funds could experience significant wealth erosion, while the broader market's volatility might deter long-term capital allocation into domestic equities, potentially slowing the sector's maturation.