Bottom-fishing capital uncovered: Four main themes driving ETF inflows

Ask AI · How do institutions view structural opportunities in a period of market volatility?

**21st Century Business Herald special correspondent, Peng Huowei **The market sinks; some people exit, and others enter.

Since March 12, China’s A-share market has continued to pull back. As of March 26, over the past two weeks the Shanghai Composite Index fell 5.91%, the Shenzhen Component Index fell 5.94%, and the ChiNext Index fell 2.3%. On March 27, the Shanghai Composite Index closed at 3913.72 points, up 0.63%. The earlier gains from the “springtime rush” have basically been given back.

However, at a time when market sentiment is low, capital is not retreating across the board. Instead, it is rebalancing and repositioning its portfolio.

Overall, the main direction of capital flows is de-risking and trimming positions. Data show that capital flowed out of stock ETFs and into money-market ETFs and bond ETFs.

Within stock ETFs, there is also intense divergence: on one side, capital withdrew from certain broad-based and industry theme ETFs such as chemicals, gold, and nonferrous metals; on the other side, capital borrowed the ETF route and “buys more as prices fall,” building exposure in areas such as short-term bonds, large-cap broad-based indices, cross-border, new energy, and quality dividend strategies.

According to Wind data, over the past two weeks (from March 12 to March 26, the same applies below), the total number of ETF units across the whole market declined by about 4 billion units, with a drop of about 0.12%.

Among them, stock ETFs faced net redemptions of 11.9 billion units.

By contrast, defensive money-market ETFs recorded net inflows of 2.2 billion units, and passive index-based bond ETFs also saw net increases of 300 million units.

This indicates that the main direction of flows recently has been trimming positions and seeking safety.

Wind data also shows that over the past two weeks, more than 200 ETFs received net subscriptions.

After reviewing the subscription/redemption data of index ETFs linked to indexes over the past two weeks, the “main battleground” for contrarian capital positioning can be summarized into four directions:

First, bond ETFs: the top choice for hedging, with short-term bonds especially favored.

When market volatility increases, bond-related assets become the market’s “stabilizer.” Among them, ETFs related to the CSI Short-Term Financing Bills Index ranked first with net inflows of CNY 6.64B. AAA Sci-Tech Corporate Bonds and Hu Cheng Investment Bonds also received net purchases of CNY 3.55B and CNY 4.7B, respectively.

Second, broad-based index strategies: balancing large-cap blue chips with hard-tech.

Although stock ETFs saw overall net redemptions, broad-based index funds representing core assets still received firm buying. ETFs related to the CSI 300 Index saw net inflows of CNY 2.79B, and ETFs related to the SSE Composite Index saw net inflows of CNY 2.75B. In addition, CSI 500 and SSE 50 saw inflows of CNY 4.51B and CNY 2.15B, respectively.

Meanwhile, the tech-related STAR 50 (Science and Technology Innovation 50) received net subscriptions of CNY 1.11B.

This shows that as capital repositions during the pullback, it not only favors the steady performance of large-cap blue chips, but also bets on the upside elasticity of tech leaders and Hong Kong-listed tech exposure.

Third, industries and themes: “dumbbell-shaped” allocation characteristics are prominent.

Capital’s positioning in industry themes shows a clear “dumbbell-shaped” structure:

On one end is “offense”: growth directions such as new energy batteries (+1.43B), green power (+11.09 billion), China Internet 50 (+1.25B), and CSI New Energy (+2.06B) received capital positioning on the long side;

On the other end is “defense”: high-dividend strategies such as CSI Dividend (High Dividend) (+1.31B), low-volatility dividend (+1.25B), low-volatility dividend 100 (+1.82B), and CSI Cash Flow (+2.54B) have become capital’s “safe havens.”

In addition, some more granular areas also saw substantial net inflows, such as securities firms (+1.63B), CSI Medical (+1.03B), CSI Coal (+10.33 billion), and power index (+10.27 billion).

Fourth, QDII funds: invest via exposure to China’s technology assets.

Although stock ETFs saw overall net redemptions, international (QDII) equity ETFs bucked the trend and received net subscriptions of 6.8 billion units. Industry insiders analyzed that because US stock funds are generally subject to purchase limits, this portion of funds actually mainly flowed into areas such as Hang Seng Tech and China concept internet mutual connections—data show that ETFs related to the Hang Seng Tech Index saw net inflows of CNY 1.03B. The China Internet 50 received net subscriptions of CNY 3.62B, which indicates long-term confidence in China’s core technology assets.

However, where there are buys, there are sells. While capital flowed into the directions above, ETFs related to chemicals, gold, and nonferrous metals experienced significant net redemptions:

ETFs related to granular chemicals (-1.43B) became the index with the most outflow;

ETFs related to SGE Gold 9999 (-8.44B) show that earlier defensive capital chose to take profits at high levels in gold;

CSI A500 (-6.35B), after a major inflow earlier on, saw some investors choose to lock in gains;

Nonferrous metals (-5.19B), granular nonferrous (±3.69B) and other sectors that had risen sharply earlier also faced large-scale net redemptions.

Regarding the nature of this round of pullback and the outlook, multiple institutions have provided in-depth interpretations.

Bi Mengruan, research analyst at Gesang Fund, believes that in this round of pullback, value-buying funds are centering their positioning around three core areas: safety, undervaluation, and certainty.

She said that assets that increased allocation against the trend mainly fall into four categories: first, defensive high-dividend sectors represented by banks, coal, and green electricity; second, low-position energy and cyclical assets benefiting from stabilization in commodity prices and tighter supply-side conditions—such as energy metals, oil and petrochemicals, and the lithium battery industry chain—where left-side bargain hunters have entered; third, defensive financial products such as reverse repos on Chinese government bonds and money market funds; fourth, deeply undervalued high-quality leaders with reasonable valuations—such as semiconductors and innovative drugs—where long-term capital has been allocated in batches.

“Looking ahead, in the short term the market will still be in a period of choppy bottoming. I don’t recommend blindly buying the dip during the pullback. You can wait until sectors stabilize after their pullback, and when trading volume gradually releases, then make allocations to seize opportunities for mid- to long-term valuation repair.” Bi Mengruan said.

Hu Muhan, fund manager at Mingze Investment, analyzed from a geopolitical perspective and argued that the rise in risk-hedging sentiment triggered by disruptions in overseas conditions is the core reason behind this round of pullback. But he specifically cautioned that expectations for easing geopolitical events are becoming clearer step by step. Once the situation cools, the market’s trading logic will shift from “hedging-led” to “risk-on preference recovery.” At that time, previously suppressed sectors such as technology growth and export chain plays are expected to see a corrective rally. He suggested maintaining caution in the short term, and taking a “staggered entries and balanced allocation” strategy in the medium term—keeping a strategic focus on technology sectors—while moderately allocating to new energy and dividend assets as a core holding.

Xia Fengguang, fund manager at Rongzhi Investment, added that besides external disturbances, the severe imbalance in institutional holdings and the overheating in parts of the structure, as well as the pressure from profit-taking positions, are also important reasons for the decline. However, he also pointed to an implied clue—earnings growth pace. He emphasized that industry leaders in sectors such as consumer, healthcare, and non-bank financials have strong annual report performance, which aligns with the trend of PPI rebound. The recovery in listed companies’ ROE will become an important force supporting related indices, and this is also a key reason the ChiNext Index has shown greater resilience in this round of pullback.

Overall, most institutions believe that in the short term the market will still be in a choppy bottoming phase, but structural opportunities have already emerged. On style, the market is moving away from single-sector theme speculation and toward a balance of undervalued value and high-quality growth with strong performance.