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, I think as long as people’s emotions last.” [the] “The U.S. is a little positive, but sentiment towards China will remain positive,” said Ren Lijian, head of quantitative investing at WisdomTree, noting that the Federal Reserve’s easing of interest rates is supporting both U.S. and Chinese stock markets. In addition, foreign investors are no longer viewing Chinese stocks as non-investments, but are starting to realize that owning some, mainly tech stocks, can be a good long-term investment, Ren said. The shift in sentiment accelerated early this year, Ren said. A year after DeepSeek’s AI breakthrough, global investors were surprised by China’s ability to match OpenAI, despite US 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 on China’s ‘AI+’ Strategy The document, released later this summer, highlights how the Chinese government aims to support AI for industrial rather than consumer applications. “The Chinese government is supporting much more industrial technology,” Ren said, adding that this is a “fundamental change.” As for whether the U.S. and China will “win” in technology, “it’s a very long-term thing at this point, so it’s really difficult to draw a conclusion,” Ren said. “If people have a long investment horizon, I think it’s still a good time to position.” Rising volatility Chinese stocks fell on Friday as U.S. stocks fell on concerns about bad loans from local banks. 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. He warned that Hong Kong’s market has historically been highly correlated with the US and that the S&P 500’s significant outperformance of more than 12% since the start of the year, compared to the Hang Seng’s more than 25% rise, “could cause some worrying profit-taking by investors.” “we [are] Citing concerns about trade tensions and U.S. credibility, Wang said, “Until the aforementioned uncertainties are resolved, the “We are strategically playing A-shares and Hong Kong,” he said, adding, “For now, we will stick to quality stocks with good earnings prospects and dividend strategies.”As the summit begins its four-day meeting, China is also scheduled to release its third-quarter GDP on Monday, which Jing Liu, chief economist for Greater China at HSBC, expects to happen in China over the next five years. The plan states that “the focus areas are likely to be frontier fields such as AI, semiconductor development, robotics, and biotechnology.” The firm’s China equity strategy team warned earlier this week of rising market volatility, but acknowledged expectations that domestic innovation would support market gains. Three mainland Chinese stocks that analysts expect to beat consensus earnings estimates are semiconductor company Gigadevices and enterprise software company Yongyou. Innovance, a factory automation company listed in Shanghai, is also listed in Shenzhen.
