BlackRock Investment Institute contends that the most significant beneficiaries of the artificial intelligence boom will primarily be U.S. equities, with only a select few Chinese companies expected to emerge as winners. The global asset manager reiterated its neutral stance on Chinese stocks in a recent report, maintaining its overweight position on the U.S. market.
While acknowledging China's strengths in AI's value chain, particularly in manufacturing and batteries, BlackRock cautioned that manufacturing prowess alone doesn't assure favorable equity returns. This perspective reinforces their preference for active, stock-specific investment strategies over broad regional allocations.
Market performance this year reflects a mixed picture: the U.S. Nasdaq Composite has climbed over 12%, and mainland China's tech-focused ChiNext index has surged by more than 20%. However, the broader Chinese market, as measured by the MSCI China index, has fallen by over 10%, contrasting sharply with major U.S. indexes which have each gained more than 10%.
Despite Beijing's proactive policies to bolster domestic AI development amidst U.S. tech restrictions and promote AI adoption across industries, BlackRock questions the profitability outlook for Chinese AI firms. Challenges include slower economic growth and intense competition. "Cheap, open-source AI could drive adoption, but that doesn't necessarily translate into AI-provider profitability," the report stated.
BlackRock does identify potential in "physical AI," where the technology is integrated into hardware such as robotics. This stock-by-stock strategy stands apart from broader market expectations that the rally in Korean and Taiwanese markets, fueled by their dominant chip sectors, would broadly extend to China.
In contrast, David Chao, Invesco Global Market Strategist for Asia Pacific, noted last month that he anticipates increased foreign investor attention on the earnings and export growth of Chinese tech companies in the coming years, citing rising interest from Latin American pension funds.
As global investors debate whether AI itself is forming a bubble, BlackRock advises focusing on companies with exposure to scarce industry inputs, including infrastructure plays spanning from China to Latin America. Ultimately, the U.S. remains BlackRock's top pick, due to its leadership in chip technology, advanced AI models, and robust capital markets, making it the most likely source of long-term AI winners.
