Huatai Securities says Q2 2026 fund holdings in the Chinese auto sector fell to
1.65%, the lowest since 2021, while sector valuations sit below the 15th
percentile of the past five years—positioning and valuation both at relative
historical lows. The report attributes the rapid de-risking mainly to a slide in
domestic demand that cut earnings expectations, and to AI thematic flows that
accelerated selling, concentrating cuts into one quarter. All four core
sub-sectors saw cuts with clear dispersion: passenger cars were cut deepest and
show the weakest fundamentals; commercial vehicles have improving profitability
but display the largest divergence between heavy holdings cuts and price
declines; auto parts were most resilient, with some stocks showing independent
alpha and receiving buys; motorcycles and other were the only overweight
sub-sector. Huatai judges downside may be limited and that upside depends on a
fundamental inflection; key catalyst to monitor is improvement in domestic sales
by end-Q3. Preferred exposures are export-strong commercial vehicle chains, the
motorcycle sector, and auto-parts names with idiosyncratic alpha.
