Two 59%+ winners, four above 25% in Aug – How this AI model keeps picking winners
Imvesting.com -- UBS Global Research analysts have revised their stance on Chinese technology stocks, lowering their rating to “neutral.”
This decision comes after a period of strong performance in the sector, with analysts citing a combination of geopolitical uncertainties and the potential for profit-taking as key factors influencing this adjustment.
The analysts at UBS Global Research pointed to the recently concluded National People’s Congress which supported China’s AI development, with the People’s Bank of China announcing an increase in loan quotas for technological innovation.
The analysts flagged that official references to AI, large language models, and the acceleration of robotics adoption signal that AI will be a major policy focus through 2025.
However, this positive outlook is tempered by concerns over escalating Sino-US tensions.
The "America First Investment Policy" memorandum signed by President Trump on February 21st, aimed at Chinese investment within US strategic sectors, has raised concerns about potential flare-ups in these tensions.
This has triggered profit-taking, particularly after the China tech sector’s significant rally, which saw gains of over 30% year-to-date.
UBS Global Research acknowledges China’s clear AI focus but expresses caution regarding tariff uncertainties and the sector’s sharp rally since the fourth quarter of 2024.
They recommend that investors secure their gains in China’s tech sector in the near term, awaiting greater clarity on US tariff policies.
The analysts also highlight positive developments, such as the release of DeepSeek’s large-language model and Alibaba (NYSE:BABA)’s Qwen model, indicating early successes in Chinese AI.
Alibaba’s strong results and its commitment to future AI capital expenditure have also increased global investor attention to the competitiveness of Chinese AI.
Despite these positives, international investors’ holdings remain below benchmark levels, and concerns persist about potential restrictions on US investments in Chinese stocks.
UBS reiterates its Attractive rating on China’s tech sector for its earnings growth prospects but remains cautious of potential setbacks if Sino-US tensions worsen, which could affect US investment into Chinese internet companies.
The analysts also notes that companies with substantial gains, like Alibaba and GDS, could face profit-taking.
Despite these concerns, UBS acknowledges Beijing’s commitment to the private sector as a key driver for future economic growth, which the market is expected to appreciate.
The brokerage has marginally raised its target valuation for China internet by 3%, indicating a low-teens upside to their end-December target. This revision is based on higher earnings growth prospects, particularly for Alibaba