In the world of investing, Mainland China investors have been closely monitoring the performance of U.S. stocks while expressing disappointment with the lackluster performance of stocks in their own country. Despite the macroeconomic differences between the two markets, the first half of the year has seen many Chinese stocks experiencing substantial growth. In fact, several Chinese artificial intelligence companies have seen their stock prices rise by double digits, showcasing the potential for growth in the Chinese tech sector.
At the top of the list of performers in the CSI 300 is Foxconn Industrial Internet. As a key supplier for Apple, Foxconn Industrial Internet saw its stock price soar by 81% in the first half of the year. Analysts at Bank of America Securities have expressed optimism about the company, citing its strong position as an iPhone casing supplier and anticipating a better iPhone shipment cycle in the coming years. This positive outlook has led to a buy rating from BofA, with a price objective that is more than 20% above the current share price.
Another standout performer in the CSI 300 is Avary Holding, a company listed on the Shenzhen stock exchange. With a nearly 81% increase in stock price in the first half of the year, Avary Holding has caught the attention of foreign institutional investors such as Standard Chartered Bank, HSBC, and JPMorgan. Analysts at Huatai have highlighted Avary’s strong position in high-end circuit board technology and its expansion into new domains such as automobiles and servers. The company’s focus on artificial intelligence-related demand in mobile phones and PCs has positioned it favorably for future growth.
Ranking third in the CSI 300 performance for the first half of the year is Zhongji Innolight, a company that specializes in optical communication. With a 70% climb in stock price, Zhongji Innolight has garnered attention from analysts at Nomura, who have given the company a buy rating. The analysts at Nomura are confident in the company’s ability to capitalize on the growing demand for generative AI training and inference, solidifying its position in the global optical transceiver market. With a technology-focused management team and strong relationships with top AI infrastructure customers, Zhongji Innolight is poised for continued success.
While individual Chinese tech stocks have shown strong performance in the first half of the year, the broader CSI 300 index has experienced a slight decline year-to-date. This can be attributed to slower economic growth and uncertainty about future earnings in China. In contrast, the Nasdaq Composite in the U.S. saw an 18% gain in the first half of the year, highlighting the diverging fortunes of the two markets. The underperformance of the mainland China stock market has made it challenging for local actively-managed funds to outperform, leading to an increase in investments by institutional investors into index-tracking ETFs.
One of the challenges faced by mainland China investors is the difficulty of accessing overseas markets due to capital controls. However, financial institutions have created mechanisms for investors to participate in international trends from a distance. For example, Invesco’s jointly managed ETF with Great Wall that tracks the Nasdaq has seen significant buying interest, causing it to trade at a premium to its net asset value. This heightened demand has led to trading suspensions on the Shenzhen Stock Exchange, where the ETF is listed.
The rise of Chinese tech stocks in 2021 showcases the potential for growth in the Chinese tech sector, with individual companies outperforming the broader market. Despite challenges faced by mainland China investors in accessing overseas markets, innovative solutions such as ETFs have provided avenues for participation in international trends. As the tech sector continues to evolve and expand, Chinese companies are well-positioned to capitalize on emerging opportunities and drive future growth in the global market.