East Capital China

The East Capital China fund delivered an exceptional return of 25.3% in USD during Q2 2026, significantly outperforming the MSCI China All-Shares Index, which returned 1.6%. This generated 23.7% of alpha, driven by proactive, high-conviction stock selection and thematic positioning across technology and upstream materials benefiting from the accelerating AI investment cycle. We maintained an active share of around 70%, remaining disciplined within our value-growth investment framework. Early in the quarter, we increased exposure to AI hardware and domestic semiconductor while reducing positions in sectors with weaker fundamentals, allowing the portfolio to capture the structural technology rally.

China's equity market experienced elevated volatility during the quarter amid ongoing geopolitical tensions in the Middle East, changing monetary policy expectations following the transition in leadership at the Fed and an uneven domestic economic recovery. Although broader market sentiment remained cautious, the technology sector emerged as the market's clear growth engine, supported by explosive AI demand and accelerating semiconductor localisation. As a result, the market delivered modest overall gains but with significant dispersion, as investor confidence and capital flows became increasingly concentrated in AI-related supply chains.

Domestically, policy continued to prioritise technological self-reliance through implementation of the 15th Five-Year Plan and guidance from the Political Bureau meeting. Fiscal incentives and industrial policies remained focused on advanced manufacturing, semiconductor localisation and the development of new productive forces. Capital market reforms also progressed, improving financing channels for hard-tech companies. By contrast, the broader economic recovery remained uneven, with household consumption and domestic demand yet to demonstrate sustained momentum.

Externally, markets were influenced by three key factors: continued geopolitical tensions in the Middle East, shifting expectations following the transition in leadership at the Fed and the rapid expansion of the global AI ecosystem. Regional conflicts continued to support elevated energy price risks, while changing expectations for US monetary policy contributed to periods of US dollar strength and volatility in cross-border capital flows. At the same time, global AI investment continued to exceed expectations, driving strong demand for computing infrastructure and hardware components and supporting China's technology and semiconductor sectors.

The information technology, materials and energy sectors were the largest contributors to portfolio performance, adding 899 bps, 873 bps and 290 bps respectively. Performance across all three sectors reflected our conviction in the AI investment theme. Shengyi Technology (600183 CH) was the largest individual contributor, returning 226% and adding 293 bps, supported by AI-driven copper-clad laminate supply shortages and an industry-wide pricing upcycle. Jiemai Technology (002859 CH) gained 182% and contributed 271 bps, benefiting from MLCC supply shortages and improving profitability among upstream materials suppliers. Jereh Group (002353 CH) returned 60% and contributed 230 bps as rising AI-related electricity demand strengthened the outlook for its data centre power generation business. We continue to believe that AI infrastructure investment and domestic substitution will provide attractive long-term growth opportunities for leading companies across the technology supply chain.

Throughout the quarter, we maintained a disciplined approach to portfolio construction, increasing exposure to globally competitive companies in AI hardware, advanced manufacturing and upstream materials where earnings visibility remained strongest. At the same time, we reduced positions in rate-sensitive and domestically exposed sectors, including discretionary consumption, where recovery continued to disappoint. We also avoided lower-quality technology companies with limited earnings support, instead focusing on businesses with strong fundamentals and sustainable growth prospects.

Looking ahead, market performance is likely to be driven by four factors: the pace of implementation of the 15th Five-Year Plan, corporate earnings across the technology and industrial sectors, monetary policy decisions by the Fed and other major central banks and geopolitical developments in the Middle East and elsewhere. Continued policy support for technological innovation and advanced manufacturing should reinforce structural growth opportunities, with AI and domestic substitution remaining key investment themes. However, risks remain, including a more hawkish policy stance from the Fed, further geopolitical escalation and the possibility that investor enthusiasm for AI infrastructure leads to valuation corrections across parts of the technology sector.

Despite continued macroeconomic uncertainty and external volatility, Q2 demonstrated that China's equity market continues to offer compelling structural investment opportunities, particularly across AI and advanced manufacturing. Our strong alpha generation during the quarter reflects the effectiveness of our bottom-up stock selection process and thematic positioning. We remain committed to our value-growth investment philosophy, focusing on high-conviction companies with strong fundamentals and long-term growth potential. As market returns become increasingly driven by earnings delivery and fundamental differentiation, we believe our disciplined investment approach will continue to identify sustainable alpha opportunities.

Performance in USD net of fees.

The information in this document should not be considered investment advice and should not be used as the sole basis for an investment decision. Please read the Prospectus and the KID, which are available on the fund page. This publication is not directed at you if we are prohibited by any law in any jurisdiction from making this information available to you and is not intended for any use that would be contrary to local laws or regulations. Every effort has been made to ensure the accuracy of the information, but it may be based on unaudited or unverified figures or sources.