**Key Takeaways**

1. **Sector Allocation Reaches Historical Extremes**: Increased exposure to ChiNext, with higher allocations to communications, media, non-ferrous metals, and power equipment. - In Q3 2025, active equity funds primarily added positions in ChiNext constituents and the tech sector. Key drivers included sustained overseas computing demand, accelerated game license approvals, rising gold/rare earth/base metal prices amid geopolitical risks and supply constraints, and domestic anti-internalization policies accelerating the recovery of new energy. - **Top Overweight Sectors**: Communications (9.3% holdings, 2.79x allocation multiple), media (2.5%, 1.40x), non-ferrous metals (5.9%, 1.44x), and power equipment (12.3%, 1.63x). - **Top Underweight Sectors**: Consumer staples, including home appliances (2.7%, 1.43x), social services (0.2%, 0.39x), autos (4.9%, 1.12x), and agriculture (1.1%, 0.98x).

- **Hong Kong Market Shift**: Active equity funds reduced exposure to Hong Kong tech, pivoting to pharmaceuticals, non-ferrous metals, and new energy. Top sectors with increased holdings included retail (+6.3%), biopharma (+3.3%), non-ferrous metals (+1.7%), power equipment (+0.7%), and real estate (+0.7%). However, tech (electronics and communications) still dominated at 23.4% and 8.1% of A+H shares, hitting record highs.

2. **TMT Sector Crowding Hits All-Time Highs**: - **Electronics** surged to 25.7% of holdings in Q3 2025, breaching the historical 20% threshold for single-sector exposure. Past instances include banking (27% in 2010Q1), food & beverage (19% in 2012), biopharma (20% in 2014Q1), computers (20% in 2015Q1), and power equipment (21% in 2022Q2). - **TMT’s Total Weight** reached 40%, surpassing the 32% peak during the 2015 internet boom and the 30%+ seen in 2022’s new energy rally. - **Margin Financing Risks**: TMT accounted for nearly 30% of margin balances (electronics alone at 15%), signaling potential reflexive selling pressure. Similar patterns preceded pullbacks in semiconductors (2020) and new energy (2021–2022).

3. **Post-Crowding Scenarios and Monitoring Metrics**: - Historically, sectors exceeding 20% holdings often see prolonged high exposure (2–5 quarters) before peaking, with fundamentals lagging by 1–3 quarters. Post-peak, prices may rebound but fail to reclaim prior highs. - **Earnings Outlook**: Electronics’ 2025 net profit growth is forecast at 54%, slowing to 34% (2026) and 25% (2027), while revenue growth stabilizes around 20%. - **PPI as a Style Catalyst**: Growth stocks outperformed during PPI contractions, but a projected mid-2026 rebound (driven by anti-internalization, restocking, and policy stimulus) may favor value cycles. - **Corporate Actions**: Industrial capital movements warrant close scrutiny.

4. **Rotation Signals**: Watch PPI and undervalued cyclical sectors. - **Financials**: Non-bank financials remain underweight (1.5% holdings, 0.24x allocation), while banks hit record lows (1.9%). - **Cyclicals/Property**: Steel, coal, petrochemicals, and real estate all held below 1%, with allocation multiples under 0.5 (except materials at 0.78x). - **Consumer Staples**: Liquor holdings fell to 4.9% (1.04x), nearing neutral. Excluding thematic funds, broad-market exposure dropped to 3.4%, below index weights. - **Biopharma Divergence**: Overall holdings at 9.7% (historically low), but innovative drug stocks, especially in Hong Kong, saw record allocations (8.2% of 11.1% total A+H pharma exposure).

5. **ETF and Fixed-Income Trends**: - **ETFs**: Equity ETF assets topped RMB 3.6 trillion (3.8% of market cap), with inflows into banking, brokers, AI, and commodities. Hong Kong tech, internet, and biopharma ETFs led gains. - **Fixed-Income+ Funds**: Raised equity stakes by 2.4% QoQ to 9.9%, favoring non-ferrous metals, appliances, media, and communications.

6. **Fund Performance and Redemption Risks**: - Active equity funds’ median YTD return reached 26.9%, trailing ChiNext and STAR 50 but matching small/mid-caps. Tech rally gains (~50% since 2024Q3) remain below historical bull-market extremes. - Net redemptions hit RMB 220 billion in Q3 as investors cashed out near breakeven levels, though a slow-bull market could ease pressure.

**Risks**: 1. Fund data may not reflect broader market trends. 2. Quarterly reports lag real-time positioning. 3. Analysis based on top 10 holdings may understate full exposures.