Analysts back Chinese AI stocks despite 10% Star Market drop
A recent 10% pullback in the Star Market 50 Index is unlikely to derail China's artificial intelligence trade as strong corporate earnings and global capital diversification offset short-term headwinds.
The tech-centric Star Market 50 Index has dropped more than 10% over the past two weeks. This sudden correction comes on the heels of a jumbo initial public offering and rising volatility tied to Federal Reserve policy expectations. For market professionals, the swift reversal raises questions about whether the momentum surrounding China's technology sector has stalled.
According to analysts, it has not. Domestic brokerages, UBS Group, and HSBC Jintrust Fund Management argue that the recent weakness is merely a short-term reaction to transient market noise. The underlying drivers of the Chinese AI trade, they contend, remain unimpaired by macro jitters originating in Washington.
The primary defense against a deeper selloff is corporate profitability. While valuations in the tech space had priced in significant future growth, actual earnings reports from AI-focused companies are now validating those expectations. This convergence of strong fundamentals and high expectations is providing a floor for equities that might otherwise be vulnerable to shifting macroeconomic winds.
Capital flows support the floor
Beyond earnings, the structural case for Chinese tech is being bolstered by changing asset allocation strategies among global investors. Institutional portfolios are increasingly looking to diversify away from concentrated Western market positions. This deliberate reallocation of capital is directing fresh liquidity toward Chinese assets, helping to absorb the selling pressure triggered by the recent IPO and Fed-related risk-off sentiment.
For stock pickers, the correction is refining rather than ending the opportunity set.
“We still like AI stocks and AI-linked sectors, such as semiconductors,” said Chen Ping, a money manager at HSBC Jintrust Fund in Shanghai. Chen noted that the supply chain is already reflecting the shift, with AI-driven demand for domestic semiconductor products becoming clearly visible in China.
The long-term trajectory for the sector continues to hinge on sustained capital expenditure. Analysts anticipate this spending will remain highly elevated, providing a reliable revenue stream for domestic chipmakers and software firms.
“Earnings from growth stocks representative of AI are generally strong now. AI capital expenditure may maintain an about 50 per cent annual compound growth rate through 2030. AI-pulled demand for domestic semiconductor products is showing up in China,” Chen said.
A projected 50% annualized growth rate in capital expenditure through the end of the decade represents a substantial baseline for revenue forecasts. If this spending materializes, the current two-week pullback will likely be recorded by fund managers as a brief technical correction within a much longer structural bull market.
