Latest data has shown how Chinese quantitative hedge funds suffered steep losses in July after a rout in global artificial intelligence (AI) stocks, with DeepSeek founder Liang Wenfeng’s nine managed products falling more than 20 percent last month.
The average long-only quant in China lost 17 percent in July, with only 4 percent of more than 1,300 products tracked by Shanghai Suntime posting gains. The crash wiped out alpha for many funds.
The scope of the damage
The pain was widespread. Nine out of 14 products managed by Shanghai Minghong Investment turned to losses, while at least one product at Ubiquant and Yanfu Investments did the same.
Shanghai Wenbo Investment Management’s 13 products fell an average of 21.5 percent for the month, with the worst performer plunging 42.7 percent.
The quant industry had grown to over 2.6 trillion yuan ($385 billion) in assets, driven by index-enhanced strategies that became a must-have for wealthy investors.
The average Chinese enhanced strategy tracking the China Securities Index Co., Ltd. (CSI) 500 Index trailed the benchmark by 0.85 percentage point through July, after beating it by 8.9 percentage points on average over the past eight years.
Why the quant funds crash happened
Earlier this year, AI stocks were on fire, and quant funds jumped on the bandwagon, loading up their portfolios as their AI models chased the trend. But when tech stocks slumped globally in July, the crash pulled Chinese shares down with them, turning what used to be a win for quants into a massive loss.
The situation got even worse because so many funds were crowded into the same small-cap AI stocks. Li Yi from Shenzhen Golden Axe Fund Sales pointed out that while quants were the stars of the first half of the year, people are starting to get skeptical again now that the big returns are drying up. “Veteran clients are calmer as they’ve seen this all before, but new investors are turning more anxious.”
The industry-wide shockwave: Why this time was different
July’s quant crash really boiled down to thrust strategies falling apart. The “thrust factor” dropped over 20 percentage points in just one month, a nosedive “rarely seen in the past decade.” It triggered a spiral where forced selling just made things worse.
The CSI 1000 index, heavily weighted toward smaller companies, fell nearly 20 percent. These stocks trade with less liquidity, so the selloff hit harder. That explosive expansion across the industry (from 1.5 trillion yuan in late 2024 to over 2.6 trillion yuan by mid-2026) basically built this delicate situation where the amazing performance of quant strategies ended up being exactly what caused them to stumble.
As one fund manager put it, “when large amounts of capital pursue similar quantitative signals, trades become vulnerable to abrupt reversals.” The thrust factor alone fell over 20 percentage points in July, exposing the risk of crowded quant positions.
