Chinese hedge funds maintain AI bets despite recent losses

When your flagship fund returns 164% through May and then the market knocks you sideways in July, most investors would at least consider taking their chips off the table. Chinese hedge funds, by and large, have decided to stay seated.

Despite a sharp correction in AI-linked stocks that dealt an average 17% loss to quant funds in July 2026, the vast majority of Chinese hedge fund managers are holding firm on their artificial intelligence and semiconductor positions. A Bank of America survey from August found that 95% of the 98 Asia-based fund managers polled either maintained or increased their focus on AI and chip stocks after the sell-off. Roughly 73% of respondents identified these sectors as their prime investment areas going forward.

The whiplash year in Chinese quant

The numbers tell a story of extraordinary gains followed by a gut punch. Chinese quant hedge fund assets surpassed RMB 2.6 trillion, roughly $385 billion, as of July 2026. Long-only quant strategies returned 44.7% in 2025, setting the stage for even more aggressive positioning this year.

Some individual funds posted returns that would make a venture capitalist blush. Shanghai Everlead Capital’s Growth Strategy No. 3 Fund generated a 164% return through May 31, 2026. Hunjin Capital’s Yueyang G1 fund gained approximately 33% over the same period.

Then July arrived. The correction hit fast and broadly, with quant funds tracking an average 17% drawdown. At least one fund from Zhejiang High-Flyer Asset Management, one of China’s most prominent quant shops, fell more than 20% in a single month.

The pain was concentrated in specific subsectors. Optical communications and advanced packaging stocks, two areas that had ridden the AI infrastructure wave higher, bore the brunt of the selling. Funds like Shanghai Everlead Capital and Hunjin Capital responded by trimming their exposure to these particular segments, though neither firm abandoned the broader AI thesis.

Why they’re staying in

The Bank of America survey data backs up this conviction. The 73% figure for managers viewing AI and semiconductors as prime investment territory actually represents an increase in interest compared to earlier survey periods, even after accounting for the July losses.

The bubble warnings nobody wants to hear

Not everyone in China’s fund management community shares the optimism. Wealspring Asset issued a warning in June 2026 about what it described as a “super bubble” forming in AI stocks. The timing proved prescient, with the July correction arriving just weeks later.

Funds are adjusting their positioning rather than their thesis, reducing exposure to the most speculative corners of the AI trade while maintaining core holdings in companies they believe have more defensible business models.