AI and Yuan Strengthen, Chinese Assets More Difficult for Global Investors to Ignore

View of Lujiazui, Shanghai's financial center. (Photo/VCG via China Daily)

JAKARTA - Assets based on the renminbi or yuan are increasingly being eyed by global investors. The attraction comes from three directions at once: China's AI supply chain, improving corporate profits, and a strengthening yuan.

Quoted from a report by China Daily, Saturday, June 6, a number of executives and analysts assessed that the Chinese market is now difficult to ignore in a diversified global investment portfolio.

UBS China head and UBS Securities Chairman Janice Hu said international investors can no longer see China only through optimistic or pessimistic glasses.

"Without investing in China, their portfolio would not reflect a truly complete diversification," Hu said.

According to him, the market value of Chinese stocks is now approaching 15 trillion US dollars and covers about a quarter of the entire MSCI index, one of the main references for global investors.

In terms of performance, Hu saw the Chinese market fundamentals starting to improve. Profits of A-share companies, which are shares traded on the mainland Chinese stock exchange, grew by more than 7 percent in the first quarter.

UBS then raised its forecast for A-share profit growth for the year to 11 percent.

A strengthening yuan is also an added attraction. UBS expects the Chinese currency to rise 3-4 percent against the world's major currencies this year.

Foreign interest is seen in share ownership. Deputy Chairman of the China Securities Regulatory Commission (CSRC) Liu Haoling said foreign investors now hold more than 4 trillion yuan, or 591 billion US dollars, of freely tradable A-share shares.

Wind Info data shows that the figure rose by almost 1 trillion yuan compared to the end of June last year.

But what has changed is not just the amount of funds. China Daily's report said that foreign investors' tastes have also begun to shift from consumer stocks to Chinese technology companies.

Sectors being targeted include AI, semiconductors, and advanced manufacturing.

The change was seen in the adjustment of the FTSE Russell index on Wednesday. New issuers that entered China's main index came from optical communications, computing infrastructure, and high-end manufacturing. This step has the potential to attract additional passive funds from global investors.

In its report, Goldman Sachs said AI is still a major disruptor in the global market. China, according to the investment bank, is an important part of the world's AI ecosystem.

Chinese companies account for about 10 percent of market capitalization and 16 percent of global revenue in the AI-related sector. Therefore, Goldman Sachs maintains an overweight recommendation for A-shares.

Overweight means that the recommended investment portion is greater than the market reference weight.

Yuan Chuang analyst from Chasing Securities said China's position in the global AI supply chain makes the renminbi asset a strategic choice for international capital that wants to enter the next industrial revolution.

But the euphoria of AI also carries risks. A number of analysts remind investors not to follow the excessive speculation.

Economist Yang Delong from First Seafront Fund said that flagship companies can still maintain valuations through profit growth. However, stocks that only rise due to themes and speculation are at risk of falling sharply.

The risk began to be felt on Friday. China's stock market weakened along with corrections on a number of Asian exchanges.

The ChiNext Index, an index that tracks China's Nasdaq-style growth board, fell 3.2 percent to 3,957.94 points on Friday, a day after hitting a record high.