As the battle for artificial intelligence (AI) supremacy between the United States and China intensifies, an analysis found that U.S. investors are pouring money into exchange-traded funds (ETFs) tied to Chinese AI corporations. The U.S. Congress's push to curb investment in Chinese technology is colliding head-on with Wall Street's interest in riding China's AI rally to generate revenue.
According to the Wall Street Journal on the 10th, local time, shares of China's large-cap tech names have surged this year. Alibaba, which is dual-listed in Hong Kong and New York, has jumped more than 80% from the start of the year to hit a 4-year record high, while Tencent and Baidu have gained nearly 50%. Investors said they bought these stocks on expectations that Chinese corporations will not fall behind in the Generative AI race, including large language models (LLMs). Alibaba said it will invest $53 billion (about 760 trillion won) over the next three years in AI infrastructure and artificial general intelligence (AGI) development, a catalyst that helped drive the stock rally.
Buying by U.S. investors has also increased noticeably. Funds run by Vanguard, BlackRock and Fidelity expanded their equity in Alibaba listed in Hong Kong this year. Money has also flowed into ETFs that track the broader Chinese technology sector. The KraneShares CSI China Internet ETF, based in New York, grew by $1.4 billion since July to approach $9 billion in assets under management, and the Invesco China Technology ETF more than doubled over the same period to around $3 billion.
Ruffer, an investment firm in London, said the price-earnings ratios (PERs) of Chinese tech heavyweights such as Alibaba and Tencent are lower than those of U.S. big tech like Alphabet, Google's parent, making their valuations attractive. Ruffer's portfolio, which manages £19 billion (about $25 billion), posted a return above 10% this year and cited a higher weighting in Alibaba as one reason. Billionaire hedge fund manager David Tepper also disclosed that he had made Alibaba the largest public stock holding at Appaloosa, which he runs, signaling optimism about Chinese tech stocks.
This trend runs counter to the mood in Washington. Congress has moved to tighten rules, seeing U.S. capital flowing to China as a long-term boost to China's military and technological capabilities that could threaten U.S. security. The annual National Defense Authorization Act (NDAA) includes a provision granting President Trump authority to further restrict investments in advanced technology areas such as Chinese AI, quantum computing and hypersonic weapons, and to require more disclosures on how U.S. investors support Chinese technology corporations. House Speaker Mike Johnson said, "Investments that underpin the aggressive behavior of Communist China must stop."
Even so, interest in Chinese AI and tech stocks is reviving. Global investors who pulled back from China amid COVID-19 lockdowns, big tech regulations and concerns over real estate distress are restoring some positions on the back of the AI boom. The fact that there are few direct U.S. government constraints in the market for listed shares has also worked in Wall Street's favor. A Nomura analyst covering China's internet sector said, "China has an enormous domestic digital market on its own, so inflows from U.S. investors will increase further."