According to Matthews Asia portfolio manager Andrew Mattock, investors aiming to increase their exposure to artificial intelligence should focus on China, as broad emerging market strategies may not provide significant AI exposure. Mattock emphasized that products like the iShares MSCI Emerging Markets ETF (EEM) are heavily weighted toward South Korea and Taiwan, while the iShares MSCI China ETF (MCHI) lacks a strong focus on AI stocks. He stated, 'The big piece that you are missing… is the Chinese piece' [1].
Mattock manages the Matthews China Fund (MCHFX), which invests at least 80% of its net assets in Chinese companies. The fund's largest holdings include Tencent and Alibaba, and it is down 4% year-to-date as of the most recent Friday's close [1]. The KraneShares CSI China Internet ETF (KWEB), which also counts Tencent and Alibaba as its top holdings, has performed worse, declining more than 27% so far this year according to FactSet [1].
Billionaire hedge fund manager David Tepper, founder of Appaloosa Management, expressed renewed optimism about China, stating in September 2024 that he bought more of 'everything' related to the country [1]. However, Brendan Ahern, chief investment officer at KraneShares, advised investors to use options strategies around ETFs like KWEB to mitigate volatility, noting that hedge funds are attracted to these ETFs because options allow them to protect against downside risk [1].
The articles highlight a shift in sentiment toward Chinese equities among some prominent investors, but also underscore the significant volatility and underperformance of China-focused funds in 2024. The use of options is recommended as a way to manage risk in this environment [1].
CONCLUSION
While some experts and investors see China as a critical component for maximizing AI investment returns, recent fund performance has been weak and volatility remains high. Risk management strategies, such as using options, are being recommended to navigate the uncertain Chinese market landscape. Overall, investor sentiment is cautiously optimistic but tempered by recent losses.