Despite recent declines in global stock markets, UBS Securities, the Chinese arm of a Swiss banking giant, remains optimistic about China’s technology and artificial intelligence stocks. The firm predicts that these sectors are still poised to lead market gains in the latter half of the year.
The recent slowdown in the AI-driven tech rally has contributed to declines across worldwide markets, including China. However, the firm believes that the unwinding of overextended positions has improved the outlook for the sector. Today, Chinese tech shares rebounded, with major technology-heavy indexes outperforming the broader market.
“As trading congestion in the tech sector eases, we expect technology and AI stocks to continue being the primary themes driving the market in the second half of this year,” said a China equity strategist at the firm in a recent report.
Supported by the rapid global growth of AI and strong policy backing in China, the technology sector is anticipated to sustain healthy earnings increases. The strategist also noted that funding from technology-focused ETFs, actively managed mutual funds, equity financing, and private equity investors is likely to keep flowing into tech stocks.
Following recent losses, stocks in mainland China saw a rebound today, with technology shares leading the gains. The Shanghai Composite Index ended up 1.8%, while the Shenzhen Component Index rose 4.8%. Meanwhile, the tech-centric ChiNext Index shot up 7.1%, and the Star Market Index gained 8.8%.
Since the beginning of the month, the Shanghai Composite has fallen 5.6%, and the Shenzhen Component is down 12%. The ChiNext and Star Market indices have seen declines of 15.1% and 18.3%, respectively.
Three Further Investment Themes
Looking ahead, the strategist suggests that investors should pay attention to three additional themes beyond AI. The first involves sectors benefitting from AI-related capital expenditures, such as data centers, power equipment, physical AI applications like robotics, and aerospace industries.
The second theme involves industries experiencing a rebound in earnings, including lithium batteries, chemicals, securities companies, insurance firms, and innovative pharmaceuticals. If enthusiasm for AI investment moderates, these sectors might attract capital focused on earnings growth, the strategist explained.
The third theme considers opportunities stemming from Chinese companies expanding abroad. The share of overseas revenue for mainland-listed companies is increasing, and their international operations typically yield much higher profit margins than domestic activities, he added.