China’s mutual fund industry kicked off 2026 with frenetic activity after delivering its best performance since 2020 last year.

The market excitement underscores how quickly sentiment can swing in this retail-dominated market. It also highlights a structural weakness: the sector still lives or dies on short-term performance.

As money keeps pouring in, regulators continue to encourage long-term capital to enter, aiming to make mutual funds serve as a stabilizer amid a bull market.

China’s mutual industry saw its busiest fundraising week in almost three months at the start of year, with 45 new products opened for subscription, a fourfold jump from the prior week and the largest pipeline since mid-October, according to data from the Asset Management Association of China ( AMAC ).

Equity vehicles accounted for 30 of the new offerings, or 66.7% of the total, while four funds-of-funds ( FOFs ) and two qualified domestic institutional investor ( QDII ) portfolios also hit the market, signalling renewed investor appetite for both onshore and offshore exposure.

Banner year

The surge follows a banner year for active equity mutual fund managers. As of the end of 2025, the average actively managed, equity-oriented mutual fund had delivered a 32% total return, the strongest calendar-year performance since 2020.

Seventy-five funds doubled their net asset value, most with concentrated bets on AI, semiconductor, and cloud-computing names that rode the country’s policy tailwind towards technology development.

The average return of the top 20 best-performing active equity mutual funds is 141.87%. The Yongying Technology Select fund, a Shanghai-based tech thematic portfolio, topped the league table with a 233.29% gain.

Meanwhile, the restrained quota allocation for overseas investing is expected to ease. Several QDII exchange-traded funds ( ETFs ) have traded at a persistent premium since 2023 after exhausting their quotas. Fund houses say they are adjusting the QDII quota in mutual funds and segregated accounts, rebalancing the mix and shifting the quota back to retail mutual funds to satisfy demand for global diversification.

ETF issuers are equally aggressive. A total of 363 new ETFs were listed in 2025, with thematic products focused on tech, new energy, and healthcare names attracting the fastest inflows. Entering 2026, sectors such as commercial space and AI continue to attract investors.

Industry executives say the pipeline for 2026 is already stacked, with firms preparing tech-themed products while keenly looking at public utilities and STAR Market sub-sectors.

For now, cash is pouring in. Mutual fund assets under management reached 36.96 trillion yuan ( US$5.31 trillion ) as of the end of October last year. In the opening fortnight of 2026, multiple equity funds have already gained more than 30 percent, fanning fears of a retail rush into unproven concepts. The same behavioural pattern seen in 2007 and 2015 has reappeared.

Market stabilizer

Market observers note that when markets rally and sentiment overheats, the mutual fund industry is expected to serve as a stabilizer, curbing speculative excess and guiding investors towards rational decisions.

Now more than two decades old, the mutual fund sector still relies heavily on market conditions, a reflection of the limited pool of genuine long-term capital in the business.

In its annual work conference last week, the China Securities Regulatory Commission ( CSRC ) pledged deeper reforms in the industry to attract more long-term capital.

By attracting more stable, long-duration money into mutual funds, the regulator hopes to correct the boom-bust cycles plaguing the sector and foster a broader, healthier investment climate.

This is especially important at a time when the macro backdrop remains fragile. The country’s real GDP growth slowed to 4.5% year on year in Q4 2025, down from 4.8% in the previous quarter. This is the third consecutive quarter of slowing growth. Although exports rebounded in Q4 2025, the property sector continues to be a drag while consumer confidence is patchy.

“Policymakers appear to favour a gradual, sustained bull market and are likely to be cautious about implementing aggressive stimulus measures in the near term,” says Chaoping Zhu, Shanghai-based global market strategist at J.P. Morgan Asset Management.

Looking ahead, the country’s economic recovery is expected to remain uneven, encouraging more investment diversification.

Fund managers advise pairing exposure to high-growth tech with positions in undervalued, traditionally defensive sectors. Technology and advanced manufacturing, powered by continued breakthroughs in AI and semiconductors, are likely to maintain rapid earnings growth, while low-valuation segments such as banks, insurers, and select state-owned enterprises offer scope for valuation repair as macro sentiment improves.