China Quant Funds Plunge Over 14% in a Single Week, Sparking Panic Among Wealthy Investors
Alina Collins
Seventy-three quant products tracking the CSI 1000 lost an average 14% last week, with some funds down over 20% in weeks — wiping out months of gains and putting high-net-worth investors under acute pressure.
How bad are the losses, and who got hit hardest?
Seventy-three quant products tracking the CSI 1000 fell an average 14% last week, underperforming the benchmark by 1.9 percentage points.
A fund under High-Flyer (幻方科技), founded by DeepSeek creator Liang Wenfeng, dropped nearly 16% in one week. BlackWing Asset Management's equity strategy fell 19.39% — its worst weekly loss ever.
One high-net-worth investor, surnamed Zhou, saw a 20-million-yuan BlackWing position shrink nearly 30% in weeks. This means → marquee names offered no shelter; losses were more concentrated, not less.
Why did quant models fail all at once?
The trigger was a sharp style rotation: capital fled small-caps and micro-caps for large-cap blue chips, blindsiding models loaded with small-cap momentum — a strategy that buys whatever has risen fastest recently.
In plain terms = these models had been betting "small stocks keep climbing" for months. When the wind shifted, they were all on the same side.
Funds rushed to cut the same positions simultaneously, compounding selling pressure and triggering broader de-leveraging — forced selling to reduce borrowed exposure — in a self-reinforcing feedback loop.
How did the crowded trade build up?
Tiger Private Fund CIO Li Minghong noted that since early 2026, strong momentum and beta factor returns led both traditional and machine-learning models to increase their weighting toward these two factors.
This reflects a structural problem: when every model uses similar logic to pick stocks, capital piles into the same AI-linked small-caps, and the rally itself grows increasingly fragile.
Once style reversed, funds with near-identical holdings were hit almost simultaneously, and alpha collapsed across the board.
What are investors going through?
Wang, an investor in Shanghai Wenbo Investment Management, entered in October last year with 1 million yuan, drawn by annualized returns above 50%. He now describes the experience as "free fall — one moment you're in the clouds, the next you're plummeting."
This means → high returns were themselves a risk signal — a strategy delivering 50% annualized carries drawdown potential of the same magnitude.
Falling margin balances, forced liquidations, and broad risk aversion amplified losses further, leaving individual investors almost no room to maneuver.
What are the fund managers saying?
BlackWing said this was an industry-wide drawdown triggered by external risks, not a model failure, and expected NAV and alpha to recover as markets stabilize.
Wenbo founder Zheng Yao said the firm would not abandon investment principles validated over the long term, and would build portfolios in "a more scientific, more intelligent" way.
In plain terms = the funds are saying "the model isn't broken — the market hit an extreme." But investors must judge for themselves whether the same model will walk into the same crowded trade again.
Markets bounced — is the crisis over?
The CSI 1000 fell more than 12% last week, its steepest weekly drop since the quant turmoil of February 2024.
On Tuesday, regulators and state-backed funds stepped in. The STAR 50 index surged nearly 11% in a single day — its biggest one-day gain since October 2024 — and the ChiNext index rebounded over 7%.
This reflects a near-term stabilization propped up by policy support, but the core question is unresolved: whether quant models can rebuild alpha under the new market structure is the real test of whether this industry can move past the crisis.
Content is for reference only, not financial advice.