China's tech revolution: invest in the recovery now!

China's tech revolution: invest in the recovery now!

China's stock market is experiencing a remarkable recovery as the government in Beijing ushers in a new era of private entrepreneurship and market liberalization. The recent signing of a trade agreement between China and the US aimed at reducing mutual tariffs has provided additional confidence in the market. Under this framework, China agrees to supply rare earths to the US without making significant concessions, potentially easing geopolitical tensions. These developments could once again attract foreign investors who are reassessing the Chinese market.

Hong Kong's Hang Seng index has posted an impressive 37 percent rise over the past 12 months, while mainland Chinese stocks have gained 13 percent. President Xi Jinping is calling on technology companies to invest more and create jobs, which has a positive impact on the country's political climate. Chinese insurance companies are also expected to increase their investments in the stock market to promote the dominance of institutional investors.

Technology catching up

There is great potential for investors in the technology sector. Chinese companies operating in the artificial intelligence, cloud computing, e-commerce and social media sectors show a high density of high-quality stocks. Tech giants such as Tencent, known for developing the super app WeChat, and Xiaomi, which recently posted an all-time high in shares with its YU7 model, are in focus. The YU7 model receives 289,000 orders and competes directly with Tesla's Model Y. Electric cars, including those from BYD, and the innovative power of the Temu e-commerce platform are also gaining international importance.

Another sign of the positive development is the new high of the China Tech Giants Index, which was recently reached. This index is currently outperforming the Hang Seng Index and shows that investors are increasingly placing confidence in the future development of the Chinese technology industry.

Artificial Intelligence Rally

A key trend contributing to the current market revival is artificial intelligence (AI). The AI ​​wave that initially began in the USA with the release of ChatGPT in fall 2022 has now also reached China. This dynamic has resulted in the Hang Seng Index increasing by over eleven percent since the launch of DeepSeeks Chatbot R1 and is on track to reach a new annual high of 23,241 points. Analysts report that the strongest phase of this rally began from January 2023, when the Nasdaq100 also posted significant gains.

The signs point to increased popularity among foreign investors. Nevertheless, experts recommend avoiding state-controlled companies as they are often inefficient and politically run. Instead, actively managed funds or ETFs could offer an attractive way to invest in China's emerging tech sector. Chinese companies not only offer high dividends, but also buy back shares, which leads to profit compression. The opportunity to invest in China's domestic market beyond the technology market remains a promising option for aspiring investors.

In the current climate, there is great optimism that Chinese technology companies will continue to hold their own and perhaps international interest will continue to grow. Foreign investors who recognize the opportunities in this dynamic market might be well advised to engage with the current developments in the Chinese stock market in order to benefit from the opportunities ahead.

As the Chinese government and companies work to improve their competitiveness, the key to success remains adaptation and willingness to adapt to new challenges.

For more information on this development visit NZZ and The shareholder.