According to a mid-year report from China Galaxy Securities Co., Ltd. (SHSE: 601881), the firm's research team suggests that the investment focus for the future should center on "technological innovation, growth, and manufacturing upgrades." The team recommends prioritizing broad-based technology ETFs and thematic ETFs focused on areas like AI, semiconductors, and the satellite industry, while also maintaining allocations to cash or short-term bonds. On the options front, protective put strategies could be used moderately to manage downside risk. The following is a summary of the report's key points.
Macroeconomic Pressure and Shifting Liquidity
In the first half of 2026, the economic index trended lower with volatility, while liquidity conditions shifted from loose to tight. Momentum was the dominant style factor throughout the period, with growth and volatility styles gradually recovering around mid-year, while defensive value and dividend styles weakened. Capital became highly concentrated in advanced manufacturing sectors like machinery, electronics, and communications, as well as the energy sector, while consumer industries generally faced headwinds. Within the technology and manufacturing space, the focus rotated from fintech and aerospace towards cutting-edge industrial chains like AI, semiconductors, and chip design. Looking ahead to the second half, a cautious and defensive posture is recommended if liquidity tightness does not ease. However, the capital consensus around the technology innovation and energy sectors is expected to persist, with the CGS team suggesting attention on indices like the STAR 50 and ChiNext 50, along with related thematic ETFs.
Active Equity Funds and Quantitative Strategies
The outperformance of active equity funds relative to the CSI 800 Index has stabilized at a high level. The declining trend in fund share totals, which began in 2023, reversed in the first quarter of this year, indicating a gradual recovery in investor confidence. Top-performing funds (with alpha exceeding 10%) were concentrated in manufacturing-related sectors such as electronics, non-ferrous metals, and power equipment, and exhibited high portfolio concentration. For quantitative funds, the growth in index-enhanced fund assets was primarily driven by new product launches, especially broad-based ones. In contrast, actively managed quantitative funds relied more on the performance of existing products to attract assets, with significant performance divergence among them.
Enhancing Quantitative Strategy Construction
The quality factor performed weakly in the first half, but its performance is expected to improve going forward. Quantitative stock selection strategies focused on the three major themes of state-owned enterprises, technology, and consumer sectors did not generate significant alpha in 2026. This was partly due to exuberant bullish sentiment and the weak quality style, and partly because of the pronounced market segmentation recently. The market-neutral, sector-diversified nature of long-only quantitative portfolios led to some alpha retracement in April and May. However, since late May, market sentiment has become more rational, and with the interim reporting season approaching, fundamental quantitative stock selection is poised to demonstrate its strengths again. The report notes that future efforts will involve mining incremental information from financial statement footnotes to develop new fundamental factors from perspectives like costs, profitability, R&D, and risk, thereby building a comprehensive fundamental database and strategy system.
ETF Trends and Strategy Performance
Under macroeconomic pressure and structural divergence in H1 2026, as liquidity tightened from April to May after a loose start to the year, asset allocation shifted from an "overweight bonds" stance to "cash is king." New ETF allocations moved from broad-based core holdings to sector themes, cross-border products, and defensive instruments. While technology manufacturing sectors (chips, semiconductors, grid equipment) led gains, the expansion in ETF shares was not simply a case of chasing rallies. Sectors like communications and pharmaceuticals saw increased allocations during pullback phases. Post-policy implementation, ETF competition is returning to benchmark constraints and allocation functions. For the second half, if liquidity conditions see marginal improvement, allocations to technology-focused ETFs covering areas like the STAR market, AI, and semiconductors could be increased.
Various ETF quantitative strategies showed divergent performance from the start of 2026 through May. Macro timing strategies were steady, effectively capturing the shifts in asset allocation. Style rotation and momentum timing strategies benefited from the dominance of momentum and the return of the growth factor, delivering standout performance. Quantile regression strategies showed strong adaptability and high return potential within the internal theme rotation of the tech manufacturing sector. Capital flow strategies faced periodic pressure due to frequent sector rotation and weakness in the consumer sector. Among basic options strategies, covered call writing and protective puts on growth-style underlyings like the STAR 50 and ChiNext indices performed relatively well.
Core Investment Recommendations
In conclusion, the report recommends anchoring the investment approach on "technological innovation, growth, and manufacturing upgrades." Investors should prioritize allocating to broad-based technology ETFs and thematic ETFs in AI, semiconductors, and the satellite industry, while maintaining positions in cash or short-term bonds. On the options side, protective put strategies can be used in moderation to manage downside risk.