In recent months, the dynamics of the Chinese stock market have shifted dramatically, leading to a wave of adjustments in asset allocation by public fundsNotably, the proportion of A-shares held by these funds has now hit its lowest level in the last seven quartersThis adjustment trend has provided a stark reflection of the current sentiments and expectations gripping investors across various sectors.

On April 25, a substantial downturn occurred in both the A-shares and the Hong Kong stock market, with the Shanghai and Shenzhen exchanges witnessing a dramatic plunge of 5.13% and 6.08%, respectivelyA staggering total of 2,514 stocks dropped by more than 8%, with 769 stocks hitting their daily trading limitAmid this turmoil, the Shanghai Composite Index dropped beneath the psychological threshold of 3,000 points, closing at 2,928.51 points

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Meanwhile, the Hang Seng Index also fell by 3.73%, breaching the critical 20,000-point mark once again.

The factors behind the shifting "expectations and sentiments" of investors are well-recognizedCritics often focus on the domestic individual investors labeled as "retail investors" as a result of their perceived naiveté, as well as the seasoned institutional investors seen as "smart money." However, these sentiments that drive market behavior also extend to domestic public funds, which form a crucial part of the investment landscape.

An analysis of the first quarter's financial reports illustrates that public funds have not merely been victims of market fluctuations; they have also played a significant role in exacerbating the downturnData from Wind Information reveals that during the first quarter, many public funds reduced their holdings in key stocks such as Wuliangye, Dongfang Wealth, China Merchants Bank, BYD, and EVE Energy

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The declines in these stocks were severe, with losses recorded at 30.36%, 31.72%, 3.92%, 14.29%, and 31.94%, respectively, echoing the broader market dips of 10.65% in the Shanghai Composite Index and 18.44% in the Shenzhen Component Index.

As one of the impacted players in this market adjustment, equity funds (which include both stock-focused and hybrid categories) have collectively reported a staggering negative yield of ¥1.33 trillion in the first quarterSpecifically, passive index funds—comprised of enhanced index strategies—saw losses around ¥270.2 billion, while actively managed equity funds experienced losses reaching ¥1.06 trillion.

In light of the evolving investment ecosystem alongside mounting performance pressures, public funds have been compelled to reduce their exposure to high-risk assets, effectively scaling back their A-share allocations

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By the end of the first quarter, the total market value of A-shares held by public funds was ¥5.51 trillion, showing a noticeable decline of ¥923.2 billion since the start of the year, which amounted to a drop of 14.34%. Correspondingly, the proportion of A-shares within the portfolio of public funds dropped to 22.25%, down 3.60 percentage points from the beginning of the year and marking the lowest level seen over the past seven quarters.

The data suggests a noticeable decline in the concentration of holdings among public funds during the first quarterAt the end of 2021, the top 50 stocks held by public funds had a combined market value of ¥2.31 trillion, accounting for 35.87% of the total A-share value held by public funds, which stood at ¥6.44 trillion at that timeHowever, by the end of the first quarter, this value had fallen dramatically to ¥1.51 trillion, reflecting a decrease of 34.63%. Its share of the total A-shares held by public funds dropped to 27.40%, a significant decline of 8.47 percentage points, with all but one of the stocks within this top 50 being reduced by varying extents.

Examining specific cases reveals more about the broad pattern of decreased holdings

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Wanhua Chemical led the reduction with its public fund holding percentage plummeting from 19.69% at the end of 2021 to just 4.18% by the end of Q1, a staggering drop of 15.51 percentage pointsSimilarly, Changchun Gaoxin went from 24.02% to 10.34% (-13.68 percentage points), and Goertek dropped from 20.16% to 9.35% (-10.82 percentage points). These losses correlate with declines of 19.91%, 38.15%, and 36.41% in stock prices, respectively, placing the three stocks high on the list of significant losers.

As we progressed into April, six stocks—including Wanhua Chemical, Changchun Gaoxin, Goertek, and others—continued to suffer steep declinesBy April 26, their cumulative losses for 2022 reached staggering highs of 23.47%, 49.93%, 48.93%, 56.67%, 53.46%, and 55.09%.

Interestingly, two major stocks that had previously garnered the highest institutional support at the year's start—Kweichow Moutai and CATL—exhibited negligible changes in their public fund holdings

The former saw shares decrease from 93.58 million to 92.06 million, while the latter's holdings increased slightly from 228 million to 283 million sharesNotably, CATL surpassed Kweichow Moutai to become the most favored stock among public funds, supported by 1,895 funds compared to Moutai's 1,754.

It's important to note that quarterly reports from public funds typically disclose only the top ten heavy-weight positions, while annual reports provide a comprehensive view of all holdingsThis discrepancy may create a perception gap regarding the extent of changes in the holdings of public funds.

When assessing sector allocations, at the end of Q1, public funds maintained their heaviest investments in alcoholic beverages, with a total holding value of ¥366.1 billion, followed by energy storage equipment and photovoltaic devices, with holdings of ¥193.3 billion and ¥182.9 billion, respectively

The semiconductor sector, which had ranked second at the beginning of the year, fell to fifth place by the end of the first quarter, with a holding value of ¥157.8 billion.

In the alcoholic beverage sector, public funds reduced their holdings across 17 focal stocksThe greatest decreases were noted for Shunxin Agriculture, Laobaigan Liquor, and Wuliangye, with their holdings dropping from initial rates of 16.07%, 23.25%, and 9.66% to 0.56%, 12.08%, and 0.16%, signaling sharp declines of 15.51, 11.18, and 9.51 percentage points, respectivelyConsequently, Wuliangye, Kweichow Moutai, and Luzhou Laojiao experienced notable drops in their total holding values of ¥42.2 billion, ¥33.9 billion, and ¥30.6 billion, respectively.

In the semiconductor landscape, the number of stocks held by public funds decreased from 59 to 49 by the end of Q1. The largest reductions were seen in AIWEI Electronics, Chipmunk Micro, and Chip Original, all listed on the Shanghai STAR Market; they saw drops of 38.62, 31.40, and 25.70 percentage points, respectively

The most substantial declines in holding values occurred for Weir Shares, Zhaosheng Micro, and Unigroup Guowei, with decreases of ¥29.2 billion, ¥14.9 billion, and ¥9.9 billion, respectivelyHowever, public funds increased their holdings in SMIC, boosting percentage ownership from 12.10% at the year’s start to 12.43%, with the number of funds holding shares in SMIC rising from 72 to 97.

The energy storage equipment sector, in contrast, saw a sharp decline in the number of stocks held by public funds from 30 at the beginning of the year to just 16. Apart from Nandu Power and CATL, the other 14 saw varying reductions, with Zhuhai Guanyu, Penghui Energy, and Yi Hua Tong-U having their holdings drop by 19.34, 17.08, and 14.90 percentage points, respectivelyIn the same timeframe, public funds slightly increased their holdings in Nandu Power and CATL by 1.96 and 0.06 percentage points, respectively.

Similarly, in the photovoltaic segment, public funds reduced their portfolios from 35 to 24 stocks, with major declines seen in Haiyou New Material, CITIC Bo, and Hema Co., all listed on the STAR Market

Notably, the price of solar power providers also fell considerably, resulting in a 7.53 percentage point drop in public fund holdingsMeanwhile, only two stocks—Central Ring Share and Beijing Qingshan Environmental Energy—saw increased shares held by public funds, having their respective percentages rise by 1.81 and 0.23 percentage points.

Among the 228 sectors classified by Shenwan, only 11 sectors exhibited an uptick in market value held by public funds by the end of Q1, which included communication operations, coal mining, poultry farming, soda ash, carbon black, phosphate fertilizers, textile printing, and gold mining.

As a result of the immense pressures stemming from the altered investment landscape and constrained performance, public funds have had to recalibrate their exposure to equity markets