China’s AI promise lures top Asia fund away from South Korea, Taiwan
Investments by leading Chinese cloud services providers are expected to rise 20% next year
A TOP-PERFORMING Asian money manager is boosting exposure to artificial-intelligence (AI) stocks in China while retreating from those in South Korea and Taiwan, citing relatively better valuations and outlook.
“Some of the names are still quite cheap in terms of valuation,” said Kelly Chung, who helps oversee the Value Partners Asian Income Fund as well as the Asian Innovation Opportunities Fund. “The capital expenditure in China to invest in AI is still very low. There is still a big room for them to actually go up in terms of AI infrastructure investment,” when compared to the US, she said.
Chung has been selling some stocks in Taiwanese and South Korean markets since August to buy more Chinese hyperscalers listed in Hong Kong, a rotation she expects to continue. The two funds, which together have about US$490 million in assets, have each beaten at least 98 per cent of peers in the past year.
The AI frenzy that’s gripped global equity markets for months is getting a fresh look from investors such as Chung amid mounting concerns about overstretched valuations for some of the biggest stocks, as well as the uncertainty over potential returns from the vast sums of money flowing into the sector. Focus, therefore, is on finding stocks that can drive the next leg of the sector’s rally or at least withstand future sell-offs.
South Korea’s tech-heavy Kospi benchmark has surged 21 per cent over the past three months, with shares of heavyweight SK Hynix, a key supplier to Nvidia, having more than doubled. Taiwan’s stock benchmark has climbed 9.2 per cent in that period. Meanwhile, the Hang Seng Tech Index in Hong Kong, which houses China’s biggest AI spenders, has slid 4.8 per cent.
The HSTECH gauge is trading at a multiple of around 18 times its one-year forward earnings, versus a valuation of 21 times for the Nasdaq-100 Index. Investments by leading Chinese cloud services providers are expected to rise 20 per cent next year, but that will still be about a 10th of US peers’, according to an estimate by Goldman Sachs.
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“In some regions such as Korea and Taiwan, we do see earnings actually upgraded, but the rally has been more driven by valuation re-rating,” Chung said in the Nov 18 interview. “People may start to actually take some profit because this year has been such a bull market.” BLOOMBERG
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