Some Asian hedge funds are increasing their investments in prominent Chinese tech companies like Xiaomi and Baidu, driven by advancements in artificial intelligence (AI). This strategic move comes despite potential further US restrictions on technology exports slated for next year.
While a current US ban on advanced chip exports to China has deterred many global investors, some funds are actively seeking opportunities within the Chinese market. They believe that Chinese firms are developing AI products tailored for a vast domestic market, leveraging self-developed large language models that are rapidly catching up to their US counterparts. Furthermore, these Chinese tech companies currently boast lower valuations compared to their American peers.
Fund managers express optimism about the growing integration of AI into the daily lives of China’s 1.4 billion people, spanning various sectors from mobile phones and smart wearables to social media applications and gaming.
Nilesh Jasani, founder of GenInnov Funds and former vice chairman for Asia at Jefferies, highlights the rapid pace of Chinese innovation reaching consumers. “We have been extremely excited by China’s ascendancy in mobility and mobiles, benefiting names like Xiaomi and Baidu,” he stated, confirming his fund’s increased exposure to the Chinese market.
Baidu, China’s leading search engine, recently launched a text-to-image generation tool for its advertising clients. The company also has plans to introduce AI-powered glasses early next year and expand its robotaxi service beyond mainland China.
Monolith Management, a Hong Kong-based hedge fund with $300 million in assets under management, is focusing on smartphone manufacturer Xiaomi and its suppliers. Timothy Wang, Monolith’s chief investment officer, emphasizes Xiaomi’s compelling edge AI user experience through its proprietary HyperOS operating system, noting its broader ecosystem encompassing Internet of Things (IoT) devices and automobiles compared to Western competitors.
Although Chinese tech stocks have trailed their US counterparts in the global AI surge this year – with the Hang Seng Tech Index and CSI AI sector rising 19% and 21% respectively, compared to the Nasdaq 100’s over 30% gain – Wang anticipates significant growth opportunities for China’s domestically developed AI products and services in the coming year. He attributes this projected growth to the widespread adoption and commercialization of large language models, coupled with China’s robust supply chain and a pool of talented product managers.
ByteDance’s AI chatbot, Doubao, achieved remarkable success in November, becoming the world’s second most popular AI application with 60 million monthly active users, trailing only ChatGPT, according to Aicpb.com.
Sean Ho, CIO of Triata Capital, which manages $770 million in assets, points to breakthroughs in AI software, such as text-to-video generation and multimodal AI. “The high rankings of Chinese AI models on open-source platforms like Hugging Face reflect their ambition to lead globally, a trend that is unlikely to be derailed by ongoing tech conflicts,” he remarked in recent investor communications.
However, not all investors share this optimistic outlook, particularly given the dominance of US, Taiwanese, and Japanese semiconductor stocks in tech portfolios and their strong performance.
Ultimately, the success of these investments hinges on AI’s ability to drive earnings growth, according to Andy Maynard, head of equities at China Renaissance Securities. “China is clearly lagging the U.S. in terms of monetization at the listed company level,” he observed.
In conclusion, while challenges remain, some Asian hedge funds are making calculated bets on the potential of Chinese tech companies to capitalize on the AI revolution, driven by domestic innovation and a massive consumer market. The coming year will be crucial in determining whether these investments will yield significant returns.
