Asian Hedge Funds Bet on Chinese Tech Stocks

By Summer Zhen

HONG KONG (Reuters) – Some Asian hedge funds are investing in leading Chinese tech firms like Xiaomi (OTC:XIACF) and Baidu (NASDAQ:BIDU), driven by their advancements in artificial intelligence, despite potential future U.S. restrictions.

A U.S. ban on advanced chip exports to China has put many global investors on hold. However, some are exploring opportunities in China, noting that local companies are developing AI products tailored for a vast domestic market, where their proprietary large language models are becoming competitive, accompanied by lower valuations compared to U.S. companies.

Fund managers express optimism regarding the increasing integration of AI into the daily lives of China's 1.4 billion citizens, impacting areas such as mobile phones, smart wearables, social apps, and games.

Nilesh Jasani, founder of GenInnov Funds, highlights the rapid adoption of Chinese innovations.

> “Chinese innovations are reaching end-users rapidly,” said Jasani.

He noted that his fund has increased its investment in Chinese companies like Xiaomi and Baidu due to their promising growth in mobility.

Baidu recently introduced a text-to-image generation tool for advertisers, plans to launch AI glasses, and is set to roll out its robotaxi service outside of mainland China.

Timothy Wang, Chief Investment Officer at Monolith Management, a hedge fund with $300 million in assets, sees Xiaomi's AI-driven user experience as superior to Western alternatives, thanks to its HyperOS and expansive ecosystem.

While Chinese tech stocks have trailed U.S. counterparts during this year’s AI surge, with the Hang Seng Tech Index rising 19% and the Nasdaq 100 increasing by over 30%, Wang anticipates growth for homegrown AI products and services. He attributes this to advancements in large language models, strong supply chains, and a skilled workforce in China.

ByteDance's AI chatbot, Doubao, surged to become the second most popular AI application worldwide, recording 60 million monthly active users, according to Aicpb.com.

Sean Ho, CIO of Triata Capital, managing $770 million in assets, sees significant developments in AI software, including text-to-video generation and multimodal AI.

> “The high rankings of Chinese AI models on platforms like Hugging Face reflect their ambition to lead globally,” Ho mentioned.

Nonetheless, skepticism remains, particularly as semiconductor stocks from the U.S., Taiwan, and Japan continue to dominate tech portfolios.

Andy Maynard, head of equities at China Renaissance Securities, emphasizes the necessity for AI to enhance earnings growth, noting that China lags behind the U.S. in monetizing its listed companies.