In a complex global economic landscape, investors are finding a resilient narrative within China's technology sector, with artificial intelligence (AI) emerging as the dominant theme. Despite broader economic slowdowns, analysts point to AI-related companies as the most promising plays, offering a clear growth trajectory.
Leonid Mironov, portfolio manager at Gavekal, highlights AI as the 'cleanest and most obvious theme right now.' His newly launched China stock fund reflects this strategy, with over half its holdings focused on semiconductors, Chinese self-sufficiency, and high-tech manufacturing. Consumer and healthcare sectors constitute a mere 6% of his portfolio, a stark contrast to China's recent economic data, which showed its weakest retail sales growth since the end of the Covid-19 pandemic in April.
Liqian Ren, director of modern alpha at WisdomTree, echoes this sentiment, stating, 'The tech play is still going to continue.' She notes that while AI ecosystem companies are showing strong earnings, their growth is not yet sufficient to entirely buoy the broader Chinese macro environment, leading to an 'uneven' market.
The landscape includes not only major private players like ByteDance and Huawei but also a growing number of publicly listed domestic semiconductor, high-tech parts, and AI model companies. Aaron Costello, head of Asia investment strategy at Cambridge Associates, observes a recent rotation within tech stocks over the past two months, narrowing the focus to 'semiconductors, hard tech, software, hyperscalers.' These hardware-focused companies are predominantly listed on the mainland Chinese stock market (A-shares) rather than Hong Kong.
This distinction is reflected in market performance: the CSI 300, an index of large-cap stocks in Shanghai and Shenzhen, has gained over 4.5% this year, while Hong Kong's Hang Seng Index remains flat. Mironov strategically includes Tencent and Alibaba as top holdings, alongside hardware firms like Shanghai-listed Anji Microelectronics, believing that policy tailwinds are often underestimated for these smaller and mid-cap companies.
While Mironov remains cautious on emerging AI model companies like Zhipu and MiniMax, awaiting signs of sustainable business models, other institutions like Morgan Stanley are more bullish. Morgan Stanley holds an overweight rating on these AI model firms, as well as Alibaba, and has a similar stance on Shanghai-listed chip company Cambricon, setting a price target of 2,000 yuan ($294).
Morgan Stanley boosts price targets for China indexes, sees upside through second quarter of 2027
Chinese stocks are about to get a big AI boost, Morgan Stanley predicts
From AI shopping to video, Alibaba is making the investments analysts want to see
