Analysts say the current movement in Chinese stocks is focused on stocks related to artificial intelligence, regardless of the slowdown in economic growth. “AI is the cleanest and most obvious topic at the moment,” said Leonid Mironov, portfolio manager at Gavekal. He said more than half of the holdings in his new China stock fund, approved just last week, are tied to semiconductors, China’s self-sufficiency and high-tech manufacturing. Consumer and healthcare are just 6% of the portfolio, he said. China reported its weakest retail sales growth in April since the end of the coronavirus pandemic. “The technology race is still going to continue,” said Liquan Ren, director of modern alpha at WisdomTree. “Although AI ecosystem companies’ earnings are strong, they are not large enough to support China’s overall macro environment,” he said. “It’s really, really uneven.” Chinese high-tech giants such as ByteDance and Huawei are not listed, but many domestically produced semiconductor, high-tech parts, and AI model companies have been listed in recent years. Aaron Costello, head of Asia investment strategy at Cambridge Associates, said it’s important to recognize that there has been a rotation into tech stocks over the past couple of months. “You can’t really call this ‘technology leading’ anymore,” he says. “The scope has narrowed further to semiconductors, hard technology, software and hyperscalers.” These hardware stocks tend to be traded on mainland China’s stock market, known as A-shares, rather than on the Hong Kong Stock Exchange. The CSI 300, the largest stock index traded in Shanghai and Shenzhen, is up more than 4.5% since the beginning of the year, while Hong Kong’s Hang Seng Index is flat. Mironov’s approach is to keep Tencent and Alibaba as the fund’s largest positions, as well as hardware companies such as Shanghai-listed Anji Microelectronics. “I don’t think people really understand how fundamentally (beneficial) this policy is having on the returns of these small and mid-cap stocks,” Mironov said. As for popular AI model companies Zhipu and MiniMax, both listed in Hong Kong, Mironov said he is still taking a wait-and-see approach as they seek sustainable business models and signs of increasing customer loyalty. This is in contrast to Morgan Stanley, which, like Alibaba, is heavily biased towards two AI model companies. The investment firm also gives Shanghai-listed semiconductor company Cambricon an “overweight” rating and a price target of 2,000 yuan ($294).
