An analysis of mutual fund portfolio adjustments in the fourth quarter reveals a slight decline in overall stock allocations, with A-shares seeing an increase while Hong Kong stock holdings continued to decrease. In terms of top holdings, the concentration in leading companies declined. The proportion of the top 100 companies held by active equity-oriented funds decreased from 60.3% to 58.8%, while the share of the top 50 dropped slightly from 47.7% to 46.7%. Regarding sector allocation increases, burgeoning demand from emerging industries boosted upstream sectors, leading to increased positions in metals, communications, and non-bank financials. Conversely, significant reductions were observed in consumer electronics, innovative pharmaceuticals, and semiconductors. Looking ahead, the institution anticipates the A-share market will exhibit a "long-term" and "steady progress" trend. The key viewpoints from CICC are outlined below.

In the fourth quarter of 2025, the A-share market experienced narrow-range fluctuations. During early to mid-November, the Shanghai Composite Index briefly hit a new yearly high, buoyed by a temporary easing in Sino-US relations and policy expectations for the "16th Five-Year Plan." Subsequently, risk appetite retreated due to factors including uncertainty around the Federal Reserve's interest rate cut pace and rising concerns over an AI valuation bubble. The market regained strength by mid-December with the onset of a year-end rally. Overall, the Shanghai Composite Index rose 2.2% in the quarter. Previously strong growth styles corrected, with the STAR 50 Index falling 10.1%, leading the declines, while the ChiNext Index closed down 1.1%. The large-cap-focused SSE 50 Index rose 1.4%, whereas the CSI 300 Index edged down 0.2%. The small and mid-cap focused CSI 1000 and CSI 2000 indices rose 0.3% and 3.6%, respectively. The dividend style performed relatively well, with the CSI Dividend Index rising 0.8%. Against this backdrop, the median single-quarter return for active equity-oriented mutual funds was -1.5%, a significant drop from the previous quarter and the lowest quarterly return for the year.

The total asset scale of mutual funds continued to expand, although the proportion of equity assets declined while the bond asset share rebounded. The overall asset value of mutual funds expanded for the third consecutive quarter, rising from 38.1 trillion yuan in Q3 to 39.5 trillion yuan in Q4. Within this, the scale of stock assets increased slightly to over 9 trillion yuan, but their share of total assets decreased by 0.7 percentage points from the previous quarter to 22.9%. The proportion of bond assets increased by 0.6 percentage points to 53.4%, while the cash asset ratio continued to rise by 1.2 percentage points. The scale of active equity-oriented funds decreased, yet their A-share allocation continued to rise; new fund issuance scale increased, while net redemptions from existing funds declined. For active equity-oriented funds, the total asset value decreased slightly from 3.1 trillion yuan last quarter to 3 trillion yuan. Stock asset size also fell by 0.1 trillion yuan quarter-on-quarter to 2.6 trillion yuan, with the allocation ratio dropping 1.4 percentage points to 87%. The A-share allocation ratio continued its rise from 71.7% last quarter to 72.3%, though it remains at a relatively low level compared to the past decade. From a funding supply perspective, estimates based on fund share and net asset value data indicate that net redemptions for active equity-oriented funds decreased to 128.2 billion yuan in Q4 compared to the previous quarter, while passive fund scale continued to grow. Regarding new fund launches, newly issued active equity-oriented funds amounted to 55.04 billion units, an increase of about 0.4%, marking the third consecutive quarter of expansion. Equity ETF issuance reached 20.3 billion units, down from the previous quarter. For Hong Kong stocks, the Hang Seng Index fell 4.6% and the Hang Seng Tech Index dropped 14.7% in Q4. The Hong Kong stock allocation ratio for active equity-oriented funds eligible to invest in Hong Kong continued to decline, falling 2.6 percentage points to 24.4%.

The characteristics of top holding allocations show a decrease in concentration among leading companies, with increased positions in metals, communications, and non-bank financials, and reduced allocations to electronics and pharmaceuticals. 1) The concentration of holdings in leading companies declined. The combined market value share of the top 100 companies held by active equity-oriented funds decreased from 60.3% to 58.8%, while the share of the top 50 dipped slightly from 47.7% to 46.7%. Analyzing changes in top holdings for the quarter, Zhongji Innolight, Shandong Precision, and Xinsheng Electronics saw significant increases in holding size, whereas Foxconn Industrial Internet and EVE Energy Co. experienced notable decreases. Among Hong Kong stocks, CNOOC and Ping An Insurance saw increased allocations, while Alibaba and Tencent Holdings saw reductions. 2) ChiNext allocation rose, while STAR Market and main board allocations fell. The main board's top holding allocation ratio slightly decreased from 58.5% last quarter to 58.4% in Q4, representing an underweight of approximately 11.8 percentage points. Growth style allocations diverged: the ChiNext allocation ratio continued to increase by 1.2 percentage points to 24.9%, representing an overweight of about 5 percentage points. Conversely, the STAR Market allocation ratio fell by 1.1 percentage points to 16.7%, though it remains overweight by 7.4 percentage points. The allocation to the Beijing Stock Exchange remained largely unchanged from the previous quarter.

3) Increased allocations were seen in metals, communications, and non-bank financials, while reductions occurred in electronics and pharmaceuticals. On the buying side, prosperity in emerging industries boosted upstream demand. Multiple factors, including loose overseas liquidity and sustained positive demand, supported continued strength in non-ferrous metal prices, with solid industry fundamentals leading this sector to receive the largest allocation increase, up 2.3 percentage points. Basic chemicals, benefiting from anti-involution policies and potential price stabilization at low levels, saw an allocation increase of 0.8 percentage points. Other resource sectors, such as petroleum & petrochemicals, steel, and building materials, received increases of 0.2, 0.2, and 0.1 percentage points, respectively. Sustained high demand for AI computing equipment, coupled with upward revisions to overseas demand expectations, led to allocation increases of 2 and 0.7 percentage points for communications and machinery equipment, respectively. The non-bank financial sector, previously under-allocated and whose performance is buoyed by improved market risk appetite, also saw its allocation rise by 1 percentage point. On the selling side, the electronics sector, which had the largest allocation increase last quarter, saw a reduction of 1.8 percentage points this quarter. Media and computer sectors also saw decreases of 1.2 and 0.8 percentage points, respectively. Allocations in the major consumer sector continued to be trimmed, with pharmaceuticals and food & beverage seeing reductions of 1.7 and 0.6 percentage points. Midstream manufacturing sectors like power equipment and defense military industry also saw cuts of 0.7 and 0.3 percentage points.

4) In terms of specific themes, communication equipment saw significant buying; consumer electronics, innovative drugs, and semiconductors saw substantial selling. The institution tracks popular themes—including semiconductors, consumer electronics, communication equipment, robotics, innovative drugs, batteries, military industry, and liquor—covering about 400 listed companies. The proportion of these stocks held as top positions by mutual funds declined compared to the previous quarter. Among them, communication equipment and photovoltaic/wind power saw allocation increases of 1 and 0.3 percentage points, respectively. Consumer electronics, innovative drugs, semiconductors, batteries, liquor, and robotics saw allocation decreases of 2.5, 1.3, 1.3, 0.9, 0.7, and 0.5 percentage points, respectively.

Public offering ETF funds continued to see asset scale growth, with equity ETF total assets reaching 3.8 trillion yuan. The asset scale of public offering ETFs continued to expand, with total asset value rising from 6.6 trillion yuan last quarter to 7.1 trillion yuan. The proportion of stock assets within ETFs slightly decreased from 67.9% to 65%. The total asset value of equity ETFs reached 3.8 trillion yuan, an increase of 0.1 trillion yuan from the previous quarter, widening the gap with active equity-oriented funds. Broad-based index ETFs accounted for 2.6 trillion yuan in assets, up 0.1 trillion yuan from last quarter, while thematic index ETF scale rose slightly to over 0.8 trillion yuan.

Looking ahead to the next stage, the A-share market is expected to show a "long-term" and "steady progress" trend. Based on mutual fund holdings, the overall stock allocation ratio has retreated, but the A-share allocation specifically continues to rise; the bond allocation ratio has increased slightly. Structurally, resource sectors like metals and chemicals, benefiting from price increase expectations, saw significant allocation increases. Communication and machinery equipment, linked to AI computing demand and high overseas景气度, along with fundamentally supported non-bank financials, also received increased allocations. The electronics sector, heavily bought last quarter, saw its allocation fall this quarter, while the major consumer sector allocation continued to be reduced. Supported by multiple factors including industrial catalysts, marginal improvements in profit expectations, a relatively loose liquidity environment, early capital deployment, and a stronger Renminbi, the A-share market started the year strongly, with trading volumes repeatedly hitting new highs. In the short term, a rapid rise in turnover rates combined with optimizations in market systems like margin trading has led to a stabilizing market after fluctuations. Recent increases in external uncertainties also warrant attention to potential event-driven impacts on Chinese assets. Over the medium to long term, the institution remains firmly optimistic about the A-share market continuing its "steady progress" trend. The共振 of international order restructuring and China's industrial innovation trends are seen as the core drivers propelling this market rally and the re-rating of Chinese assets. Regarding configuration, it is recently suggested to focus on the following areas: 1) High-Growth Sectors: After three years of rapid development, AI technology is expected to gradually enter a phase of industrial application realization around 2026. Opportunities remain in optical modules and cloud computing infrastructure, potentially leaning more towards domestic alternatives. Application areas to watch include robotics, consumer electronics, and intelligent driving. Additionally, innovative drugs, energy storage, and solid-state batteries are also entering their景气 cycles. 2) Export Breakthroughs: Overseas expansion remains a relatively certain growth opportunity. Combining出海 trends and exposure to the US market, suggestions include home appliances, construction machinery, commercial passenger vehicles, power grid equipment, gaming, and globally priced resources like non-ferrous metals. 3) Cyclical Reversals: Based on the stage of the capacity cycle, focus on sectors nearing an inflection point of supply-demand improvement or receiving policy support, such as chemicals, aquaculture, and new energy. 4) High-Quality High-Dividend Stocks: The entry of medium to long-term capital is a persistent trend. From the perspective of quality cash flow, low volatility, and dividend certainty, one can structurally allocate to high-dividend leading companies. 5) Sectors with Bright Spots in Annual Reports: Examples include the gold sector, the TMT sector benefiting from high AI景气度, and non-bank financials.