China tech plays to ride out macro volatility
The China stock play right now is to focus on artificial intelligence-related names, regardless of the slower economic growth , several analysts said. “AI is the cleanest and most obvious theme right now,” said Leonid Mironov, portfolio manager at Gavekal. More than half of the holdings in his new China stock fund, just approved in the last week, are related to semiconductors, Chinese self-sufficiency or high-tech manufacturing, he said. Consumer and health care are just 6% of the portfolio, he said. For April, China reported its weakest retail sales growth since the Covid-19 pandemic ended. “The tech play is still going to continue,” said Liqian Ren, director of modern alpha at WisdomTree. The “AI ecosystem companies, their earnings are doing well, [but it’s] not big enough to support the whole Chinese macro environment,” she said. It’s “really, really uneven.” While Chinese tech giants such as ByteDance and Huawei are not publicly traded, a slew of homegrown semiconductor, high-tech parts and AI model companies have listed in the last few years. It’s important to realize that over the past two months or so there is a rotation with tech stocks, said Aaron Costello, head of Asia investment strategy at Cambridge Associates. “We really can’t call it ‘tech-leading’ anymore,” he said. “It has become even more narrow, into semiconductors, hard tech, software, hyperscalers.” Those hardware stocks tend to trade on the mainland Chinese stock market, known as A shares, rather than the Hong Kong stock exchange. The CSI 300, an index of the largest stocks trading in Shanghai and Shenzhen, is up more than 4.5% this year, while Hong Kong’s Hang Seng Index is flat. Mironov’s approach is to hold Tencent and Alibaba as his fund’s largest positions, as well as hardware companies such as Shanghai-listed Anji Microelectronics. “I think people don’t really see and appreciate how fundamentally [beneficial] the policy has been to the bottom line of these smaller and mid-cap names,” Mironov said. As for popular AI model companies Zhipu and MiniMax, both listed in Hong Kong, Mironov said he is still on the sidelines as he’s looking for signs of a sustainable business model and more customer loyalty. That contrasts with Morgan Stanley, which is overweight on the two AI model companies as well as Alibaba. The investment firm also has an overweight rating on Shanghai-listed chip company Cambricon, with a price target of 2,000 yuan ($294).
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