Foreign investors are rushing to buy China's hard technology stocks. In the first quarter, the position of QFII exceeded 220 billion yuan, with heavy purchases of Tianfu Communication, Zhongji Innolight, and Luxshare Precision.
Currently, Chinese assets are under close scrutiny from overseas funds. According to Wind data, as of the end of the first quarter of this year, the total market value of QFII holdings exceeded 220 billion yuan, a nearly 20% increase compared to the end of 2025.
On May 20th, Zhang Xiaoning, a China equity strategist at J.P. Morgan, told a reporter from Time Weekly that in terms of allocation ratio, overseas investors, especially regional funds, have significantly reduced their underweight positions in China in the past two years. Driven by the resilience of the macro - economy and the "strong internal and external liquidity", foreign capital is accelerating its return to the Chinese stock market. The net inflow of overseas funds since the beginning of the year has far exceeded that of the past three or four years, and the allocation preference is spreading from traditional Internet consumer leaders to high - quality growth areas such as advanced manufacturing and artificial intelligence.
"Considering both domestic and overseas capital flows, we believe that the liquidity in the Chinese stock market is relatively abundant, and such abundant liquidity also provides solid support for the upward movement of the market," Zhang Xiaoning said.
01 The significant narrowing of foreign underweight and the notable acceleration of capital inflows
According to Wind data, as of the end of the first quarter of this year, QFII appeared in the top ten tradable shareholders' lists of 1,522 A - share listed companies. The total number of shares held reached 13.858 billion, an increase of 2.948 billion shares compared to the end of 2025, a growth rate of 27.02%. The total market value of holdings reached 221.201 billion yuan, a 19.79% increase compared to the end of 2025.
Looking at different institutions, J.P. Morgan Securities Co., Ltd., Goldman Sachs, and UBS Group were the top three foreign institutions in terms of the number of newly - added stocks in the first quarter. As of the end of the first quarter, the three institutions held 364, 525, and 526 securities respectively, an increase of 173, 169, and 137 compared to the end of 2025. The total market value of their holdings was 8.852 billion yuan, 13.939 billion yuan, and 25.977 billion yuan respectively.
"In terms of allocation ratio, overseas investors, especially regional funds, have significantly reduced their underweight positions in China in the past two years," Zhang Xiaoning said. Data shows that the underweight of China by active funds in Asia (excluding Japan) has narrowed from - 8.3% at the end of February 2024 to the latest - 1%. The underweight of emerging market active funds has shrunk from about - 4.5% in January 2024 to - 2%. Global funds have shown a significant rebound in the first two months of this year, with the underweight narrowing from - 2% to about - 1.7%. Considering that the management scale of global funds is about five times that of regional funds, the incremental capital they bring is quite considerable.
Zhang Xiaoning cited data from the global capital flow monitoring institution (EPFR) and said that as of May 15th, overseas - listed public funds have recorded a net inflow of $13.1 billion this year, significantly higher than the same period in previous years. She emphasized that behind this trend is not only the support of the global liquidity environment but also the recognition of China's own macro - economic resilience.
Zhang Xiaoning further analyzed that there are two factors behind the increased net inflow of foreign capital into China: Firstly, since the beginning of the year, the US dollar has been generally weak, driving strong capital inflows into emerging markets including China. Secondly, since the Middle East situation became unstable at the end of February, the advantage of China's macro - economic resilience has been further highlighted, becoming an important fundamental support for the continuous inflow of capital.
Compared with the A - share market, the Hong Kong stock market has performed relatively weakly since the beginning of the year. As of the time of writing on May 21st, the Hang Seng Index has fallen 0.91% this year, and the Hang Seng Tech Index has fallen 13.51%.
Zhang Xiaoning said that she is generally optimistic about the MSCI China. There are some short - term overseas liquidity suppression factors, and the first - quarter performance is still waiting for a turning point. However, she also saw some optimistic indicators in the first - quarter reports. For example, some high - weight stocks have achieved some results in reducing losses or increasing revenues. "The current investment in AI by Chinese Internet giants is clearly accelerating in terms of performance, which will contribute to the expansion of the valuation of these enterprises."
02 The shift in foreign capital preference: from Internet giants to advanced manufacturing
Looking at the newly - added holdings of QFII in the first quarter, hard technology has become the focus of overseas funds.
According to Wind data, as of the end of the first quarter, there were 12 companies with a newly - added market value of QFII holdings exceeding 1 billion yuan. Among them, stocks such as Tianfu Communication, Zhongji Xuchuang, Luxshare Precision, and Zhongtian Technology ranked high in terms of the market value of holdings.
Specifically, as of the end of the first quarter, Morgan Stanley International Co., Ltd. and UBS Group appeared among the top ten tradable shareholders of Tianfu Communication, a leading optical module company, holding 8.1034 million shares and 4.1935 million shares respectively. Meanwhile, Morgan Stanley International Co., Ltd. also held 6.4949 million shares of Zhongji Xuchuang, making it the tenth largest tradable shareholder.
In addition, as a global leader in precision manufacturing, Abu Dhabi Investment Authority became the sixth largest tradable shareholder of Luxshare Precision in the first quarter, with a shareholding of 35.7832 million shares.
"A notable trend is that overseas investors are gradually shifting from their previous preference for large - scale consumer - oriented Internet giants to the direction of advanced manufacturing, including some A - share targets," Zhang Xiaoning said.
Against the background of abundant liquidity and stable and improving performance, Zhang Xiaoning suggested that investors adopt a strategy of focusing on high - quality growth and carefully selecting individual stocks, with a focus on directions such as the artificial intelligence ecosystem, energy security, and robotics.
Specifically, according to IDC (International Data Corporation) forecasts, the compound growth rate of the global AI industry from 2024 to 2029 is expected to exceed 30%. Based on this, the entire AI ecosystem chain is expected to benefit. "There may be rotations in sub - sectors, but the entire AI ecosystem chain is the core growth line we are optimistic about," Zhang Xiaoning said.
Secondly, the energy security track is also favored, including new energy vehicles, power equipment, energy storage, new energy, and upstream - related materials. On the one hand, from the perspective of domestic demand, the proportion of new energy in China's energy structure has exceeded 10%, with the medium - term policy goal aiming at 30% and the long - term goal at 50%, indicating sufficient medium - and long - term growth space for the industry. From the perspective of external demand, the high - oil - price environment brought about by the Middle East geopolitical conflict will accelerate the overseas penetration of Chinese new energy vehicles and other products, creating a resonance between domestic and external demand.
Another is the robotics sector, which can be divided into two main lines: humanoid robots and industrial robots. Humanoid robots are expected to benefit from the phased catalysis brought about by the listing plans of some emerging companies this year, while industrial robots are expected to benefit from the upward trend of China's overall capital expenditure.
This article is from the WeChat official account “Time Weekly” (ID: timeweekly). Author: Huang Yukun. Republished by 36Kr with permission.