Targeting China: A Crucial Element for AI Investment Strategies

Investors seeking to enhance their artificial intelligence exposure should consider allocating capital to China, suggests Matthews Asia portfolio manager Andrew Mattock.

He emphasized that a targeted strategy is necessary, as broad-based emerging market approaches are unlikely to yield the desired results.

“When investors purchase a generic emerging market fund or a standard MSCI product, they are missing a significant component,” Mattock stated during CNBC’s “ETF Edge.” “The critical element you are overlooking is the Chinese market.”

He pointed out that firms from South Korea and Taiwan constitute nearly half of the iShares MSCI Emerging Markets ETF (EEM) whereas the iShares MSCI China ETF (MCHI) does not emphasize AI equities.

Mattock manages the Matthews China Fund (MCHFX). The fund allocates a minimum of 80% of its net assets to common and preferred stocks of Chinese companies, per the firm’s website.

The fund is down 4% year-to-date as of Friday’s close. Its primary holdings are Tencent and Alibaba.

Revisiting David Tepper’s Aggressive China Investment Call

Interest in Chinese equities appears to be undergoing a significant transformation.

Billionaire hedge fund manager David Tepper, founder of Appaloosa Management, renewed his confidence in the world’s second-largest economy, revealing in September 2024 that he purchased “everything” related to China.

Conversely, KraneShares’ Brendan Ahern advised investors to adopt strategies that shield them from volatile fluctuations in the Chinese market.

“I recommend utilizing options alongside ETFs such as KWEB [KraneShares CSI China Internet ETF],” the firm’s chief investment officer noted during the same interview.

“Hedge funds favor these ETFs because they can sell calls to primarily safeguard their positions,” he explained. “This provides a degree of downside protection.”

Data from FactSet indicates that the KraneShares CSI China Internet ETF shares the same top two holdings as the Matthews China Fund: Tencent and Alibaba. However, as of Friday’s close, the KraneShares fund has declined over 27% year-to-date.

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