(Yicai) March 4 -- Leading Chinese private funds increased their allocation to overseas stock markets last year, as offshore stocks surged mainly because of the artificial intelligence frenzy, but decided to reduce their holdings this year to avoid risks.

"Last year, the fund's proportion of US stocks reached about 20 percent," a market expert at a Chinese private fund managing CNY10 billion (USD1.4 billion) worth of funds told Yicai. "But given the significant gains, we have reduced our allocation to prevent risks."

The US Standard and Poor's 500 Index and Nasdaq-100 Index soared 24.2 percent and 53.8 percent, respectively, while the Nikkei 225 Index jumped 28.2 percent last year.

The Chinese private funds interviewed by Yicai all confirmed they raised their overseas allocation last year, mostly of the S&P 500 and Nasdaq-100 indexes, with the latter being more prevalent. Their holdings of Japanese stocks were lower because of a slower institutional allocation pace.

Chinese private funds investing overseas all performed well last year. According to data from Citic Securities, the annual returns of two foreign-oriented funds under Shanghai Greenwoods Asset Management reached 26.9 percent and 23.7 percent. Both funds have large holdings of US stocks, mainly focusing on the information technology sector.

The gains in the US stock market have been largely driven by AI and weight-loss drugs last year. The shares of US semiconductor giants Nvidia, Advanced Micro Devices, and Super Micro Computer skyrocketed 236 percent, 114 percent, and 255 percent, respectively, throughout 2023. Meanwhile, pharmaceutical giants Eli Lilly and Novo Nordisk surged 59.3 percent and 52.9 percent in the period.

In the medium-to-long term, the data centers of Nvidia's graphics processing unit business will face challenges, Duwan Xinyi, a US stock market researcher at Yude Capital, a CNY10 billion Chinese private fund, told Yicai. First, the firm may be unable to keep high prices and profit margins because of the deteriorating competition, and second, other cloud service platforms are starting to develop their own AI accelerator chips to replace some of Nvidia's on the market, Duwan added.

"Perhaps this year, the cost-effectiveness of Chinese mainland- and Hong Kong-listed stocks will also improve," the above market expert noted.

Editor: Futura Costaglione