Instead of the large-scale stimulus implemented in previous downturns, it appears that China is keen to roll out more targeted measures designed to support the high-quality growth that President Xi Jinping has repeatedly called for. High-quality growth refers to growth driven by consumption, innovation, and technological self-sufficiency.
China sees artificial intelligence (AI) as an important engine of this growth. AI is expected to be part of a long-term industrial trend, thereby leading to a super-cycle in technology innovation.
To ensure sustained support for this sector, China’s Ministry of Science and Technology recently set up a special programme dubbed “AI for Science”. This programme aims to promote innovative applications of AI in key industries. Major Chinese cities like Beijing and Shanghai have also established their own strategic policies to encourage AI development1.
Investing in long-term AI trends
The United China A-Shares Innovation Fund (the “Fund”), sub-managed locally by Ping An Fund Management, aims to achieve long-term capital appreciation by investing primarily in A-shares of companies listed in China, which are likely to be the main beneficiaries of technology, innovation and other growth trends.
This includes companies directly or indirectly involved in AI.
Over the past two months, many Chinese stocks have seen price corrections due to investor disappointment on the sluggishness of the country’s post-Covid economic recovery. The Fund took advantage of this price correction to add more AI stocks, especially as these companies have relatively strong profit models and a favourable medium-term outlook supported by policy catalysts.
In particular, the Fund targeted the following:
- Tech hardware enterprises that stand to benefit from computing power demand
As demand for AI computing power accelerates amid rising demand for AI products, hardware supply chain companies in China could benefit given their capacity for large-scale production. These companies are poised to become part of the global supply chain for AI computing power.
- Innovative enterprises at the forefront of AI applications
China’s push to integrate AI and its economy opens up opportunities for innovative enterprises to develop new AI applications for a wide range of industries. Such companies could have significant growth potential as AI applications become an integral part of work and daily life.
Figure 1: New AI-related stock additions to the Fund
|Company Name||Fund weight (%)||Description||Reason for inclusion|
|Eoptolink Technology Inc. Ltd||2.19||Provider of optical transceiver solutions and services||Eoptolink is the world's leading optical module supplier. It could benefit from the growing demand for AI computing power, and become part of Nvidia’s supply chain in the future.|
|Iflytek Co. Ltd||1.96||Engages in speech intelligence and AI development||Iflytek’s AI capabilities have recently been applied within the education sector.|
|Suzhou TFC Optical Communication Co. Ltd.||1.95||Manufacturer of fibre optical connective components||As an optical module supplier for Nvidia, TFC could benefit from the growing demand for AI computing power.|
|Zhongji Innolight Co. Ltd||1.83||Provider of high-speed optical transceivers||Zhongji Innolight has high exposure to AI as it is the main supplier of Nvidia’s AI computing network.|
|Cambricon Technologies Corporation Limited||1.09||Manufacturer of core processor chips for intelligent cloud servers, terminals, and robots||Cambricon Technnologies stands to benefit from the growing demand for AI-related chips.|
|Foxconn Industrial Internet Co. Ltd.||1.08||Engages in the design and manufacture of communication network and cloud service equipment, precision tools, and industrial robots||As a key Nvidia supplier, Foxconn Industrial Internet stands to benefit from the growing demand for Nvidia’s AI chips.|
|Dawning Information Industry Co. Ltd.||1.01||Provides high-performance computing, server, storage, cloud computing and big data services||Dawning Information Industry could benefit as China invests more resources in AI infrastructure construction.|
|Hygon Information Technology||1.01||Manufacturer of high end processors, deep computing processors, and other computer components||Hygon stands to benefit from the growing demand for AI-related chips.|
Source: UOBAM, data as of 31 May 2023
United China A-Shares Innovation Fund: Allocation
As a diversified investment, the Fund also offers exposure to cutting-edge companies from sectors outside of AI.
Overall, Industrials (including AI hardware) makes up the largest sector allocation at about 22 percent. Information Technology (IT) is the second largest sector at around 19 percent. Materials and Consumer Discretionary make up about 16 percent and 11 percent respectively.
Figure 2: Sector allocation (%) of the United China A-Shares Innovation Fund
Source: UOBAM, data as of 31 May 2023
Figure 3: Fund’s top 5 holdings
|Company||Fund weight (%)||Description|
|Contemporary Amperex Technology||8.59||Largest lithium-ion battery manufacturer for electric vehicles|
|Kweichow Moutai||6.52||Producer of the spirit Maotai baijiu|
|Xilinmen Furniture||5.49||Manufacturer of specialised mattresses and related products|
|Sailun Group||4.84||Manufacturer of rubber tire products|
|Anhui Honglu Steel Construction||4.51||Manufacturer of steel structures for industrial buildings|
Source: UOBAM, data as of 31 May 2023
United China A-Shares Innovation Fund: Fees
|United China A-Shares Innovation Fund|
|Fund classes available2||Class A SGD Acc, Class A USD Acc, Class T USD Acc|
|Management Fee||Class A SGD Acc: Currently 1.75% p.a.
Class T USD Acc: Currently 0.65% p.a.
|Subscription Fee||Class A SGD Acc: Currently up to 5%
Class T USD Acc: Currently none
|Minimum investment||Class A SGD Acc: S$1,000/US$1,000 (initial); S$500/US$500 (subsequent)
Class T USD Acc: US$100,000 (initial); US$50,000 (subsequent)
Information reflected is accurate as of 26 June 2023
Near term risks remain
Technology and innovation could drive the next leg of China’s growth and offer investors attractive opportunities for long-term capital gains. But in the near term, China’s shaky economic recovery could dampen investor sentiment and weigh on China A-Shares as investors await more targeted stimulus measures. Meanwhile any negative news with regards to, for example, stricter AI regulations could trigger increased volatility within the AI sector.
1Shanghai woos semiconductor and AI projects with generous subsidies, lining up behind Beijing’s innovation drive, South China Morning Post, 25 April 2023
2Investors should refer to the Fund’s prospectus for more details on the different classes available.
|If you are interested in investment opportunities related to the theme covered in this article, here is a UOB Asset Management Fund to consider:|
This document is for general information only. It does not constitute an offer or solicitation to deal in units in the Fund (“Units”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information is based on certain assumptions, information and conditions available as at the date of this document and may be subject to change at any time without notice. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of the Fund or UOB Asset Management Ltd (“UOBAM”) and any past performance, prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of Units and the income from them, if any, may fall as well as rise, and is likely to have high volatility due to the investment policies and/or portfolio management techniques employed by the Fund. Investments in Units involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund's prospectus. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before investing. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. Applications for Units must be made on the application forms accompanying the Fund’s prospectus.
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
UOB Asset Management Ltd. Company Reg. No. 198600120Z