China’s AI strategy shift spurs hunt for new stock winners

SHANGHAI – Investors are growing more upbeat about China’s push to build a “smart economy”, with AI, semiconductors and a range of frontier technology sectors emerging as beneficiaries of the policy drive.

The latest signals from Beijing’s political gathering have reinforced the view that tech self-reliance and industrial upgrading will anchor economic growth in the years to come. Analysts at Citigroup and Morgan Stanley say they are favouring tech and innovation sectors, expecting further policy support to follow.

China’s new economic blueprint signals a shift in artificial intelligence strategy from a phase centred on technological breakthroughs towards commercialisation. For equity investors, that would widen the pool of beneficiaries beyond the earlier favourites such as chipmakers to sectors including humanoid robots, brain-computer interfaces, biomanufacturing and future energy.

Policymakers’ “focus on hard core tech and innovation stands out”, Morgan Stanley strategists wrote in a note. “Upcoming future industries are also clearly laid out for growth and development transition”, they said, citing a focus on quantum tech, embodied intelligence, brain-machine interface and 6G. 

Shares of AI chipmakers, as well as quantum computing and brain computer-related stocks, jumped after the government report’s release. A gauge of humanoid robot stocks rose 1.4 per cent on March 5, snapping an eight-day losing streak, and extended gains on March 6. 

More broadly, Chinese markets have held up better than their Asian peers amid the global sell-off caused by the war in Iran.

Smart economy 

In a sign of the tech sector’s rising importance to the economy, “artificial intelligence” was mentioned seven times in Premier Li Qiang’s report to the National People’s Congress, up from three a year earlier. Beijing also set a target of increasing the value added of core digital economy industries to 12.5 per cent of gross domestic product by 2030, from 10.5 per cent in 2025.

“We will create new forms of smart economy,” Mr Li said on March 5. That phrase, along with references to “satellite internet”, “future energy” and “new types of energy storage”, has sent investors on a hunt for fresh stock winners.

To some onshore market watchers, the first-time inclusion of “smart economy” in the work report signals more than a short-term boost for related stocks. 

AI is likely to move into a broader commercial roll-out, creating opportunities in infrastructure such as chips, computing power and cloud services, as well as in applications like robotics and intelligent driving, China International Capital analysts wrote in a note. 

Beyond the well-known technology winners, analysts at China Galaxy Securities and GF Securities see fresh opportunities emerging in energy, after Beijing elevated “future energy” to the top of its emerging-industry agenda.

That shift “underscores the strategic importance of energy technologies in the new round of industrial competition”, analysts at China Galaxy wrote. Priority areas include hydrogen, advanced energy storage and controllable nuclear fusion, they added.

Stocks related to wind, nuclear and pumped hydropower climbed after the government unveiled a plan to expand capacity in those sectors by 2030.

Concrete measures needed

Some investors remain cautious, viewing the latest policy plan as largely repackaging themes promoted in recent years and saying they want to see a more detailed road map.

“The continued focus on tech and innovation is in line with market expectations and while staying the course is commendable, nothing new in terms of direction or specific support was announced,” said Union Bancaire Privee managing director Ling Vey-Sern. 

Still, a renewed pursuit for beneficiaries may inject fresh energy to Chinese stocks, which have lost momentum since February. The tech-focused Star 50 Index is down 9.1 per cent since a January high, while the onshore benchmark CSI 300 has been rangebound. BLOOMBERG