Mainland Chinese overseas funds find winners in oil, US stocks as Hong Kong bets struggle

Mainland Chinese funds investing overseas have produced contrasting results this year, with energy and US stock-linked products leading the pack, while Hong Kong equity-linked funds lagged behind, according to financial data provider Wind. A 50% rise in crude oil prices in 2026, following US strikes on Iran, spurred energy-linked funds to the top of QDII (Qualified Domestic Institutional Investor) program investments.

US, South Korean, and Japanese stocks also performed strongly, with benchmark indices rising at least 10% this year. Meanwhile, Hong Kong stocks – particularly technology companies – lagged, with the Hang Seng Index falling over 4% and the Hang Seng Tech Index down about 25% due to concerns about the earnings outlook for mainland Chinese internet platforms heavily reliant on e-commerce.

Most QDII products are passive ETFs tracking specific asset class indices. The sector remained popular as mainland Chinese investors sought overseas assets outperforming yuan-denominated stocks, totaling 1 trillion yuan (US$150 billion) or 2.5% of the industry. Beijing's QDII program and Stock Connect scheme are the main channels for overseas investment.

However, some QDII funds traded at significant premiums to their net asset values, leading to trading suspensions and risk warnings. In August, Beijing added nearly US$7 billion in new QDII quotas. China Southern Crude Oil Securities Investment Fund, a 1.5 billion yuan fund investing in global oil ETFs and energy stocks, topped QDII products with an 84% return this year, followed by similar oil funds from E Fund Management and Harvest Fund Management.

A semiconductor fund managed by Huatai-Pinebridge Fund Management also performed well, gaining 27% and holding South Korean memory chipmakers SK Hynix and Samsung Electronics. Analysts suggest enthusiasm for QDII funds may wane in the coming months due to sustained diplomatic efforts easing Middle East tensions, oil price pressure, and tighter US regulation of AI, potentially impacting the industry's growth.