Amid escalating U.S.-China tensions and overall market volatility, investment strategists expect Chinese stocks to hold up as the country doubles down on technology development. “Right now, as long as people’s sentiment toward the U.S. is slightly positive, sentiment toward China will also remain positive,” said Ren Lijian, head of quantitative investing at WisdomTree. He noted that the US Federal Reserve’s easing of interest rates is supporting both US and Chinese stock markets. In addition, foreign investors are starting to realize that holding a slice of mostly tech stocks can be a good long-term bet, rather than viewing Chinese stocks as broadly uninvestable, Ren said. This shift in sentiment accelerated earlier this year after DeepSeek’s AI breakthrough surprised global investors with China’s ability to rival OpenAI, despite U.S. restrictions on access to the chip. Since then, the Chinese government has touted advances in deep-seeking and other homegrown technologies while appearing unafraid to retaliate against the United States with tariffs, port fees and export restrictions. China’s top leaders will detail further technology ambitions and policy support when they meet from October 20 to 23 to discuss the country’s goals for the next five years. Even if investors ignore China’s AI and internet technology stocks, the return on invested capital for the rest of the MSCI China index has improved while India’s has largely stagnated, Sunil Thirumalai, chief GEM equity strategist at UBS, said in a report on Friday. When you add in Chinese internet trading, which usually includes Alibaba, the returns of Chinese stocks are even better than Indian stocks. But China’s high-tech strategy for the future is changing. Details of China’s “AI+” strategy, announced later this summer, highlight how the Chinese government aims to support industrial AI rather than consumer applications. “The technology that the Chinese government is supporting is much more in industrial technology,” Ren said, adding that this is a “fundamental change.” Whether the U.S. and China will “win” in technology is “a very long-term thing at this point, and it’s very difficult to really draw a conclusion,” Ren said. “If people have a long investment horizon, I think it’s still a good time to position.” Local bank. The Shanghai Composite Index fell nearly 2%, and Hong Kong’s Hang Seng Index fell nearly 2.5%, providing some support for the growing investment thesis that favors mainland Chinese stocks, known as “A shares,” over Hong Kong stocks. “Don’t buy the dip just yet,” Laura Wang, chief China equity strategist at Morgan Stanley, said in a note late Friday. She cautioned that the Hong Kong market has a historically high correlation. Due in part to its relationship with the United States, its strong performance since the start of the year (the Hang Seng index has risen more than 25%, while the S&P 500 has risen more than 12%) “could cause some anxious profit-taking by investors.” “We are tactically fighting OW A stocks versus Hong Kong until the aforementioned uncertainties are resolved,” Wang said, citing concerns about trade tensions and U.S. credibility. China is also set to release its third-quarter GDP on Monday as world leaders begin a four-day meeting with high earnings visibility and a focus on quality names. HSBC’s Chief Economist for Greater China, Jin Liu, predicts that China’s next five-year plan will be “focused on frontier sectors such as AI, semiconductor development, robotics and biotechnology.” Earlier in the week, the firm’s China equity strategy team warned of rising market volatility, but confirmed expectations that domestic innovation would support market gains. Three mainland Chinese stocks that analysts expect to beat consensus earnings estimates are Shanghai-listed semiconductor company Gigadevices and enterprise software company Yongyou, and Shenzhen-listed factory automation company Innovance.
