The automation and artificial intelligence movement is taking center stage for investors this year, and not surprisingly, there are significant implications for China and its financial markets.
However, stock picking to that effect is difficult, underscoring the utility of exchange traded funds such as the KraneShares Hang Seng Tech Index ETF (KTEC). KTEC, which follows the Hang Seng TECH Index, is home to the 30 largest Hong Kong-listed technology companies, some of which are credible avenues to China’s artificial intelligence industry.
Due to demographic challenges, including an aging population and dwindling labor supply, China may have no choice but to fully embrace AI. That movement could be accompanied by long-term benefits for KTEC.
“China is facing similar demographic challenges over the next two decades as its population ages and its workforce declines. Already, China’s policymakers are emphasizing productivity through urbanization, renewable energy and continued dominance in manufacturing, all of which require investment in automation,” according to Morgan Stanley research.
Another reason KTEC could prove relevant in the artificial intelligence investment conversation is the fund’s exposure to semiconductor and software companies, which will play pivotal roles in ushering in a new era of reduced AI costs. In turn, those lower costs could boost adoption and product development. Generative AI — the broadest AI concept — could be a significant driver of KTEC performance.
“Given the magnitude of computing power that is required to process this type of AI, significant investment will be needed to make the technology commercially or industrially scalable. However, we believe that with time and technological advancement, the breakthroughs in AI could help fuel economic activity and productivity growth in the decades to come,” added Morgan Stanley.
KTEC checks another important box. One can say what one will about the Chinese government, but Beijing has a documented history of supporting industry — particularly when it comes to establishing leads in marquee technology segments, of which AI is certainly one.
That support is crucial because rolling out innovative technologies to the extent that China needs to in an effort to wring significant benefit is costly. Plus, KTEC offers investors the added perk of being an efficient avenue for China tech and AI exposure.
“For investors interested in how their portfolio can benefit from a more automated world, there are a number of approaches to consider. Thematic exchange-traded funds (ETFs), for one, can provide broad exposure to both U.S. and global companies involved in automation across sectors such as technology, industrials and communications,” concluded Morgan Stanley.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.