Twelve Chinese fund companies implemented benchmark adjustments for 195 public mutual funds on June 1, affecting 3910 billion yuan in assets under management, following new regulatory guidelines that took effect March 1. The adjustments coincided with a sharp divergence in A-share markets, where technology stocks declined while consumer stocks rebounded. Industry insiders widely denied a causal relationship between the benchmark changes and market movements, attributing the style shift to multiple factors including crowded trades in high-valuation tech sectors and macro volatility. The China Securities Regulatory Commission's Guidelines on Performance Benchmarks for Publicly Offered Securities Investment Funds became effective March 1 after a three-month transition period, requiring funds to align benchmarks with actual holdings rather than force portfolio restructuring.
12 Fund Companies Adjust Benchmarks for 3910 Billion Yuan in Assets
CITIC Securities calculated that 195 existing funds from 12 fund companies underwent benchmark adjustments, spanning equity, hybrid, bond, fund-of-funds, and QDII categories. The 3910 billion yuan in total assets includes 58% hybrid funds by count and 1885.8 billion yuan in bond funds by scale (approximately 48% of total). The adjustments followed the three-month transition period after the CSRC guidelines took effect March 1.
Industry Insiders Deny Causal Link Between Adjustments and Market Shifts
Multiple public fund industry sources interviewed rejected the hypothesis that benchmark adjustments drove the June 1 market divergence. One unnamed public fund insider stated that recent market adjustments resulted from overlapping factors including concentrated unwinding of crowded tech trades, increased overall trading volatility, and technical pressures coinciding with external macro disturbances. The source added: "Forcibly linking this to performance benchmark adjustments—I understand that to be incorrect."
Another industry participant explained that many existing products initially set unscientific performance benchmarks, and the current adjustments represent a normalization move aligned with industry maturation. The source stated: "It is precisely to give holders a more stable holding experience that benchmarks are made to fit actual positions, rather than setting a dogmatic benchmark to force large-scale fund rebalancing. Cause and effect cannot be reversed."
CITIC Securities Estimates 10% Rebalancing Requirement
Analysts citing CITIC Securities data indicated that while over 3900 billion yuan in funds faced benchmark adjustments, only approximately 10% may require substantive rebalancing. This translates to roughly 400 billion yuan in potential capital flows. One industry source noted that equity funds typically maintain minimum 80% stock positions, and even under rebalancing mechanisms designed to match existing holdings, some adjustment demand remains unavoidable.
One public fund insider clarified that June 1 marked the effective date of amended contract terms for the first batch of fund companies, not a rebalancing deadline. The source emphasized that the core principle is "adjust benchmarks, not positions," with a one-year smoothing buffer period established to eliminate instantaneous impact on secondary markets. The source stated that panic selling concerns represent an overreaction to the rules and lack fundamental logic for sustained liquidity withdrawal from markets.
The same source suggested that structural movements of the magnitude seen—technology stocks declining sharply while consumer stocks surged—more likely stem from large institutional capital making active, concentrated strategic rebalancing based on independent judgments about crowded tech trades and short-term valuation bubbles. Recent trading patterns showed decisive and concentrated selling inconsistent with the smooth characteristics of compliance-driven micro-adjustments, potentially indicating active timing behavior based on market judgment.
Institutions Maintain AI Investment Outlook Despite Volatility
Dongwu Fund attributed recent tech stock pressure to two factors: significant gains over the past two months creating crowded positions, and relatively high valuations on the STAR Market. The firm stated that AI may remain a critical force determining global economies and equity markets, with both upstream capital expenditure and downstream applications growing rapidly. Dongwu Fund noted that corporate earnings for major AI-related companies globally and price increases across AI upstream segments confirm this trend may continue vigorously. The firm concluded that tech stocks may remain worthy of attention after adjustments.
Hongli Fund senior equity fund manager Sun Shuo identified two key concerns for the AI sector: risks from excessively rapid AI industry development potentially causing valuation volatility if iteration speed exceeds social acceptance capacity, and risks from AI development falling short of expectations if slow industrial implementation disappoints capital and social resource expectations despite large North American AI capital expenditures in recent years.
Pengyang Fund stated that markets overall are in a consolidation phase, with tech sector pullbacks primarily driven by trading structure, though long-term industrial trends remain unchanged. The firm noted that market style shows signs of shifting toward balance, recommending focus on companies with fundamental certainty within technology and structural allocation attention to previously declined categories. Pengyang Fund added that the current semiconductor rally has lasted approximately 28 months, approaching the historical average 30-month duration for industry-cycle-driven stock rallies, with about 2-3 months remaining to the historical upper limit. The firm stated that while historical patterns may not repeat, close attention to subsequent industrial data inflection points is warranted in a tightening liquidity environment. Pengyang Fund concluded that markets possess necessary conditions for major style shifts (valuation, positioning) but await three key signals: confirmation of strengthened domestic demand and declining external demand narratives, improved corporate earnings data, and warming macro indicators like consumer prices, with AI industry investment cooling potentially serving as a style shift catalyst.
FAQ
What did 12 Chinese fund companies do on June 1?
Twelve Chinese fund companies implemented benchmark adjustments for 195 public mutual funds on June 1, affecting 3910 billion yuan in assets. The adjustments followed new CSRC guidelines that took effect March 1 after a three-month transition period, requiring funds to align benchmarks with actual holdings.
Why do industry insiders deny a link between fund adjustments and market movements?
Multiple public fund sources stated that the June 1 market divergence—technology stocks declining while consumer stocks rebounded—resulted from overlapping factors including crowded tech trades unwinding, increased volatility, and macro disturbances. Sources emphasized that the benchmark adjustment principle is "adjust benchmarks, not positions," with a one-year buffer period designed to eliminate market impact, making panic selling concerns an overreaction lacking fundamental logic.
How much capital may require actual rebalancing from the benchmark adjustments?
CITIC Securities estimated that while over 3900 billion yuan in funds faced benchmark adjustments, only approximately 10% may require substantive rebalancing, translating to roughly 400 billion yuan in potential capital flows. Industry sources noted this represents a limited portion of the total affected assets, with the adjustment designed to match existing holdings rather than force large-scale portfolio restructuring.
