China Equity Strategy：Mutual fund purchases and redemptions，Reasons， flow and outlook

Investment Rating - The report maintains a constructive outlook on value and large-cap styles, indicating a limited downside risk for the A-share market [5][28]. Core Insights - Active mutual funds (MFs) have experienced significant redemptions, with a decrease of 136.7 billion units in Q124, marking the largest quarterly fall in the past decade, while passive funds saw an increase of 207.7 billion units in H124 [2][9][12]. - The A-share market has faced a downturn, with the Wind All A-share Index and CSI 300 Index down 31% and 33% respectively since early 2022, leading to a correction of 36% and 28% in equity/hybrid MFs [8][9]. - The report suggests that the resumption of active MF purchases may be driven by factors such as a rising stock market, declining mortgage rates, and improved long-term shareholder returns [4][28]. Summary by Sections Mutual Fund Dynamics - Active funds are under redemption pressure due to poor performance, with significant unit and AUM decreases in Q124 and Q224 [9][10]. - Passive funds have outperformed active funds, with a notable AUM increase of Rmb311.3 billion in Q124, primarily driven by investor interest in large-cap blue-chip ETFs [12][15]. Investor Behavior - Post-redemption, investors are likely reallocating funds towards low-risk options such as paying off mortgages, increasing savings, or investing in money market and bond funds [3][18][22]. - Households are building precautionary savings, with excess savings estimated to exceed Rmb6 trillion by the end of Q224 [22]. Market Outlook - The report anticipates that value stocks will outperform growth stocks in H224 due to a lack of new capital in the A-share market [5][28]. - There is a tactical inclination towards sectors with solid earnings growth, such as electronics, utilities, energy, and telecom, while caution is advised for sectors facing slowing export demand [5][28].