Institutional analysis indicates that the external shock's marginal impact is weakening, and the market will revert to pricing based on corporate fundamentals.

Securities Times reporter An Zhongwen

As the second quarter approaches, the impact of overseas uncertainties and geopolitical conflicts on the market has gradually weakened. Public mutual funds are refocusing on the intrinsic value of companies. After analyses, many fund companies believe that the market’s most intense phase of valuation adjustments may already be behind us, and that future market action will be more closely driven by fundamentals. Faced with the situation in which first-quarter performance has diverged significantly and top holdings are generally under pressure, public funds, while staying true to the technology main theme, are placing greater emphasis on earnings certainty, and using high-dividend assets to smooth portfolio volatility—pointing the way for second-quarter positioning.

Funds face valuation compression pressures

In the first quarter of 2026, the overall investment difficulty for public mutual funds increased markedly, and fund performance showed clear differentiation. Under the influence of external environment and industrial-chain fluctuations, most top-held stocks encountered valuation pressure. Concentrated positions in technology stocks generally adjusted, while only a few products focused on sub-sectors such as storage performed particularly well, with holdings that were relatively more diversified.

Among them, the top-performing all-market active equity fund in the first quarter achieved a 60% return thanks to a concentrated allocation to the storage sector. The fund ranked second within the same theme had a return that differed by 23 percentage points from that figure, highlighting that even within the same technology track, fund performance can vary dramatically. This also reflects that, amid overall market pressure, relying solely on a small number of highly favorable sub-sector directions is not enough to reverse the challenges public funds face overall.

Taking active equity QDII funds oriented toward Hong Kong stocks as an example, such funds generally performed lackluster in the first quarter. Most products hovered between slim profits and losses, in contrast to global technology QDII categories that showed relatively stronger performance overall. QDII products leading in performance held multiple key positions in U.S. stocks and markets in Asia-Pacific, such as leading semiconductor and storage companies including Micron Technology, SanDisk, TSMC, Samsung, SK hynix, and others.

In addition, only a small number of QDII funds achieved positive returns through high-dividend, low-valuation strategies. These products tend to overweight traditional blue-chip sectors such as financials and energy, avoiding high-volatility technology growth stocks, reflecting that in the current market environment, institutions remain cautious about valuation risks of Hong Kong growth stocks.

Return to fundamental valuation

As global risk appetite gradually cools, funds’ top holdings continue to face valuation pressures. Several public-fund professionals believe that in the second quarter, after the market gradually absorbs geopolitical and macro risks, the marginal impact of external volatility on stock prices will weaken, and certainty in corporate earnings and fundamentals will again become the core of valuation.

Wei Fengchun, chief economist at CICC GF Fund, judged that the Middle East conflict boosts an energy premium. Energy and utilities have earnings rigidity and defensive value. With capital shifting from high-valuation growth to low-valuation defense, this reflects a logic of prioritizing safety in the short term while still focusing on industrial upgrading in the long run. Although there is a window for geopolitical downgrades in April, the geopolitical landscape has already undergone profound changes. Issues such as energy security and conflicts involving intermediaries will persist long term, and the key variables must be monitored dynamically thereafter to capture the pace of asset allocation.

Wang Li, a senior macro strategy researcher at Great Wall Fund, said that the conflict between the U.S. and Iran is an important factor behind the A-share adjustment in the first quarter. On one hand, geopolitical stalemate pushes up the oil-price benchmark. On the other hand, the market structure rotates quickly with the intensity of the conflict. When tensions are high, defensive assets take the lead; when sentiment eases, technology stocks also see a rebound.

He said that the trajectory of geopolitical developments and first-quarter report performance will be the core variables determining capital allocation in the second quarter. Current market sentiment indicators have shown bottoming signals. If geopolitical pressure eases, consensus on going long may be expected to form. And if the first-quarter reports can provide clear clues to market favorability, they will also increase investors’ willingness to allocate to highly favorable directions.

Liu Fangyuan, an index research analyst at E Fund, said that for stock selection in the second quarter of 2026, it should return to fundamentals, focusing on earnings certainty and the path to realization. Growth sectors represented by Hang Seng Tech are still directions with relatively higher certainty. The AI industry is moving from the investment stage toward commercial deployment. Areas such as cloud computing, computing power, and internet platform applications have higher industry favorability, improving the trackability of earnings; under the current environment, they表现 relatively stable. At the same time, high-dividend sectors with stable cash flows and dividend capacity can serve as important supplements to portfolios. When interest rates are relatively high and market volatility increases, they provide a defensive role.

Technology remains the main allocation theme

In choosing investment tracks for the second quarter, the technology sector remains a core direction targeted by multiple public mutual fund institutions.

Wei Fengchun, for example, cited Zhang Xueji’s two-championship win at the WSBK Portugal round as a case. He looks favorably on China’s long-term advantages in high-end manufacturing and AI enabling exports. He believes that this breakthrough breaks the decades-long brand monopoly held by European, American, and Japanese players. It is a landmark event showing China’s manufacturing shift from low-end involution to high-end external competition. It also confirms that the Zhugela cycle trend, driven by high-end manufacturing, is becoming clear. With resonance between equipment upgrades and industrial upgrading, the manufacturing industry is moving from games within existing capacity to incremental breakthroughs, and short-term disruptions will not change the direction of long-term technological breakthroughs.

Liu Fangyuan sees three major directions. First is AI and related technology industry chains, including cloud computing, computing-power infrastructure, and internet platforms, which benefit from the advancement of AI commercialization. Second is internet platforms and the digital economy, where, relying on user, data, and scenario advantages, they have strong capabilities to transform AI applications. Finally is the high-dividend sector, covering cash-flow-stable companies such as financials, utilities, and energy, which have allocation value during market turbulence.

Morgan Stanley Fund-related personnel also emphasize that AI remains the core of the technology sector, and going forward it will rely more on earnings catalysts. Although the AI sector is affected by volatility in U.S. tech stocks, overall earnings certainty remains strong. OpenClaw is driving a surge in Token demand, and the domestic platform invocation volume has increased by tenfold. The trend of raising prices in related products has continued for months. The Middle East situation further strengthens expectations of price increases. Even if geopolitical pressure eases later, this trend will be difficult to reverse. Domestic-demand-related products are about to undergo earnings verification, and some underlying targets have already moved out of the bottom.