China fund beating 98% of peers bets on AI chain, healthcare

A TOP-PERFORMING China Asset Management fund manager says the country’s artificial intelligence stocks are far from bubble territory and is bullish on opportunities across the value chain.

Companies such as Tencent Holdings and Alibaba Group Holding have just started to significantly ramp up their AI investment, whereas their US peers began that several years ago, Leo Fan, director and portfolio manager at ChinaAMC (HK), said on Wednesday (Apr 15).

“Chinese Internet companies have very healthy balance sheets,” he said. “As latecomers, they can stand on the shoulders of the pioneers and achieve comparable returns at a relatively lower cost.”

Fan favours stocks ranging from chipmakers to optical communications and Internet giants, underscoring his confidence in China’s ability to secure leadership in the global race for AI dominance.

Chinese AI firms’ worldwide recognition has extended far beyond the big tech names, with large language model developers such as MiniMax Group and hardware tech names such as Sunny Optical Technology Group becoming globally competitive.

ChinaAMC is one of the country’s largest mutual fund operators. Fan’s China Opportunities Fund is up 15 per cent so far this year, outperforming 98 per cent of its peers, according to data compiled by Bloomberg. In contrast, the MSCI China Index has fallen about more than 1 per cent during the period, while a Hang Seng gauge of Chinese stocks is little changed.

The fund’s fact sheet does not disclose its top stock holdings. As at the end of February, it had around US$26 million in assets under management, with 80 per cent exposure to the Hong Kong market, 4 per cent to the US and less than 2 per cent to mainland China.

On sectors, healthcare was the largest allocation at 24 per cent, while communication services and information technology together accounted for about 18 per cent.

On healthcare, Fan touts China’s strong cost and efficiency advantages in new drug development.

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“Outbound licensing deals by Chinese biopharmaceutical companies have surged over the past few years,” he said. “Innovative drugs remain a sector we believe is worth overweighting.”

He has gradually reduced exposure to energy stocks as much of the impact from the Iran conflict has already been priced in, and remains cautious on consumer stocks.

The Hang Seng Tech Index, which has lagged Asian benchmarks and entered a bear market this year, has been weighed down mainly by intense competition in the food delivery sector, according to Fan.

He said that the worst of it appears to be over, but further developments will depend on regulatory signals and how market participants adjust their behaviour. BLOOMBERG