Investors get more bullish on China stocks as the Asian giant goes big on AI: Morgan Stanley

[SINGAPORE] Investors are getting increasingly bullish on Chinese stocks – partly fuelled by the country’s strong, differentiated developments in artificial intelligence (AI), said Morgan Stanley equity strategists.

Chief China strategist Laura Wang said at the Morgan Stanley’s Apac Summit 2025 this week that she has observed the “highest level of interest from US investors” in Chinese holdings since the Covid pandemic, as at September 2025.

“Over 90 per cent of these investors I spoke with told me they were going to increase allocations to China,” she shared at Morgan Stanley’s Apac Summit 2025 on Wednesday (Nov 19).

The panellist noted that structural improvement in the China equity space has been occurring “steadily”, especially since the second half of 2024. This follows an extended period of underperformance and continuous valuation de-rating from 2021 to 2024.

Leaders in China’s AI, technology and smart-manufacturing space are also emerging to participate in global competition. This can enable a “valuation regime shift” for Chinese offshore equities, the analysts said.

“We continue to like AI (as a sector),” said Wang. “Based on the (Chinese) government’s as well as tech and innovation corporates’ track records – they deliver. So we want to stand by them when they say they will focus on certain sectors on a long-term basis.”

That said, the country appears to have gone through a “trough” in consumer confidence after its “Deepseek moment”, said Pierre-Henri Cloarec, portfolio manager of the Nordea 1 – Emerging Sustainable Stars Equity Fund, with signs of recovery now emerging.

Wang from Morgan Stanley also acknowledged that China is still seen as number two – behind the US – in the AI sector among investors, broadly speaking.

Other Chinese sectors such as robotics and automation, and biotech and drug development, however, come out on top, said Wang.

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How China leads in the field of AI, more specifically, is when it comes to “monetising (it)... and finding use cases for the technology”, said Gina Kim, portfolio manager, emerging market equities at Nordea Asset Management, at a 2026 investment outlook briefing on Tuesday. She also asserted how the country leads in medical and diagnostics-related AI.

At this juncture, investor interest in what the next generation of Chinese companies that can compete and perform on an international stage is, stays keen, said the panellists.

Risks for China, broader Asia players

A key risk that China will face in the AI race is the management of its supply chain, particularly in the area of “advanced physical AI” which requires a significant amount of memory and computing power, said Kim.

“If the supply chain within China is unable to be as efficient as the supply chain outside of it, then I do see that development stalling to a certain point in the short term,” she posited.

Chip quality and availability would thereby be a “key bottleneck”, Kim explained.

Various parts of Asia are the “backbone” of enabling AI, said Nordea Asset Management’s Kim, pointing out that Taiwan and South Korea in many ways are the “pick and shovel makers” in this field.

Despite a supply-side consolidation in the space, she maintained that there continues to be “plenty of upside” in these parts of Asia.

“The valuations that we’re seeing right now do not adequately reflect their potential earnings for the next three to five years, because of this consolidation.”

Cloarec also reiterated how South Korea and Taiwan have been “central” to the AI supply chain and performed very well in 2025. “We expect that importance – particularly in relation to Nvidia and the broader AI ecosystem – to continue.”