The artificial intelligence (AI) renaissance is captivating investors and technology buffs. For market participants, the 2023 AI conversation has largely revolved around domestic companies, but with this being an emerging technology with myriad applications and long-term implications, it’s reasonable to expect that China will be a prominent player.
It already is, and investors can access China’s emerging AI prowess via select exchange traded funds, including the KraneShares Hang Seng TECH Index ETF (KTEC). As its name implies, KTEC follows the Hang Seng TECH Index, which is a basket of the 30 biggest Hong Kong-listed technology stocks. By some estimates, China may be a tad ahead of the U.S. when it comes to developing AI technologies.
AI companies in the world’s second-largest economy are benefiting from U.S. investment. A recent report by Georgetown University’s Center for Security and Emerging Technology confirmed that at least 37% of the AI-related investment in China for the seven years ending 2021 was from U.S. companies.
Many of those investments were directed to smaller, early-stage companies that aren’t yet public. Fortunately for investors in the U.S., KTEC is a more than credible option when it comes to accessing China’s AI boom. In a new note to clients, Morgan Stanley analyst Shawn Kim highlighted several stocks with AI ties, including some that are KTEC components.
“In every new cycle we see new bubbles, which form when a new innovation comes along, and everyone gets excited about the future. However, the hype around generative AI may be justified and the technology feels genuinely exciting,” wrote Kim. “There are many reasons why this one stands out.”
Among the names mentioned by Kim is Baidu (NASDAQ:BIDU). Once viewed as the “Google of China,” the company could be a dominant player in China’s chat bot market, and that’s relevant to KTEC investors because the stock is the ETF’s eighth-largest holding, accounting for 5.27% of its weight.
Baidu “is completing internal testing of its ‘Ernie Bot’ in March and aims eventually to merge that with its search engine – a big AI model that the search firm has been working on since 2019,” added Kim.
GDS Holdings, a smaller KTEC component, has AI inroads due to a diverse client roster that includes cloud computing firms and e-commerce providers, among others. In fact, Baidu is a GDS Holdings client. Morgan Stanley’s Kim noted that GDS sports somewhat attractive valuations and “has more balanced exposure to all internet companies.”
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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.