As China rolls out grand plans to integrate artificial intelligence into its economy, the latest financial results show some companies are already making gains even as overall growth slows. Mainland Chinese stocks, known as A-shares, have so far posted a 12% year-on-year increase in third-quarter profits, Lei Meng, China equity strategist at UBS Securities, said in a report on Tuesday. “Given the rising demand from AI and self-reliance, rapid revenue growth in the larger high-tech sector boosted overall profits for former financiers.” Profits in AI-related sectors such as media, electronics and computers rose 57%, 41% and 34%, respectively, in the third quarter, Meng said. “We believe ‘growth’ may remain a key investment theme going forward. The ChiNext board emphasizes better risk/reward as long-term resilience and valuation accelerate returns.” ChiNext is a Shenzhen, China stock index whose largest members include CATL, Innolight and Sungrow Power. Gerald van der Linde, head of Asia-Pacific equity strategy at HSBC, said in mainland China, “AI infrastructure hardware makers have benefited the most from the rise in share prices.” In Hong Kong, “Internet name companies with AI-related cloud services and models are the biggest beneficiaries,” van der Linde said in an email Thursday. Struggling stocks As the earnings season begins, Chinese stocks are struggling amid major events such as the “Fourth Annual Plenum” of top leaders in late October to set targets once every five years, and trade talks between Chinese President Xi Jinping and U.S. President Donald Trump. Mainland China’s CSI300 stock index rose last month to its highest since early 2022, but has since struggled to match that gain. The Shanghai Composite Stock Price has risen to a 10-year high in recent weeks, but again failed to maintain the psychologically important 4,000 milestone on Friday. “Market sentiment weakened toward the end of the year as risk appetite continued to decline and third-quarter earnings announcements continued,” Laura Wang, chief China equity strategist at Morgan Stanley, said in a note Thursday. “We remain constructive on China over the medium term and will be closely monitoring e-commerce companies’ guidance as it may provide an indication of how revenue growth will play out in 2026.” Gaming and social media giant Tencent Holdings, Hong Kong’s biggest stock by market capitalization, is scheduled to report results next Thursday. Alibaba Group has not yet disclosed when it plans to report its next earnings report. HSBC’s Van der Linde said capital investment by major Chinese tech companies, including Alibaba and China Unicom, is estimated at about $63 billion in 2025, significantly higher than the $44 billion invested in 2024. The strategist said that companies included in mainland China’s CSI300 index had a 5% year-on-year profit growth rate in the third quarter. But van der Linde said companies included in Hong Kong’s Hang Seng Index have so far reported third-quarter profits down about 1% from a year earlier, largely due to intense price competition among internet companies. He pointed out that Hang Seng stock’s return was 14%, down from 16% a year ago. Economic polarization The divergence reflects the polarization of China’s economy, as industries seek to adapt to new technology in the face of a real estate recession and trade tensions with the United States. Bernstein and Société Générale analysts said in a joint report Nov. 3 that they expect a handful of sectors, including consumer goods, communications, technology and health care, to contribute about three-quarters of earnings per share growth from 2024 to 2027. These four sectors are the focus of the SG Bernstein China Next Winners Basket. Its top three recommended technologies are Chinese consumer electronics giant Xiaomi, data center optical solutions provider Innolight, and another data center component player, Luxshare. “With the completion of the fourth general meeting in South Korea and the Trump-Xi meeting, we think the outlook has improved to cautious optimism rather than pessimism due to the worst trade war tensions since President Trump’s first term,” said Brian Ticanko, an analyst at Stansbury Research. Investors “should expect improved earnings expectations to maintain the upward trend in both U.S. and Chinese stocks.” A more stable environment will allow companies to plan for at least the next 12 months and allow the Chinese government to focus more on existing policy priorities, Tikanko said. “Therefore, we expect sectors that have performed well in 2025 as well (robots, semiconductors, e-commerce, new generation consumer stocks like PopMart) to continue their winning streak next year.” — CNBC’s Michael Bloom contributed to this report.
