Mainland China investors these days are often focused on how well U.S. stocks are doing, while bemoaning the tepid performance at home. There are clear macroeconomic differences between the two markets, with hardly any major Chinese stock doubling in price this year like Nvidia has. However, a closer look at the first-half performance shows that many China stocks still rose by double-digits, including a few in the artificial intelligence sector.
The top performer in the CSI 300 index was Apple supplier Foxconn Industrial Internet. Listed in Shanghai, it soared 81% in the first six months of the year. Analysts at Bank of America Securities have a buy rating on Foxconn Industrial Internet (FII) and raised its price objective to 33 yuan ($4.54). The analysts are optimistic about FII’s margin and earnings due to strong casing sales and the anticipation of a better iPhone shipment cycle in the coming years.
Following closely behind Foxconn was Shenzhen-listed Avary Holding, which jumped nearly 81% in the first half. Avary Holding is expected to benefit from artificial intelligence-related demand in mobile phones and PCs. The company’s robust advantages in high-end circuit boards position it well to capitalize on these trends. With the potential for growth in new domains like automobiles and servers, analysts at Huatai rate Avary a buy.
Ranking third in CSI 300 performance in the first half was Zhongji Innolight, which climbed 70%. Nomura rates Zhongji Innolight a buy and is confident in the company’s ability to maintain its leading position in the global optical transceiver market. The buoyant infrastructure demand driven by generative AI training and inference is expected to benefit companies like Innolight.
The CSI 300 index as a whole is down slightly year-to-date, influenced by slower economic growth and uncertainty about future earnings. This contrasts with the Nasdaq Composite’s first-half gain of 18% in the U.S. The broader mainland China stock market, measured in Class A shares, has underperformed over the past two years. This underperformance has made it more difficult for local, actively managed funds to outperform, leading to an influx of investments by institutional investors into index-tracking ETFs.
Capital controls in China make it challenging for many mainland investors to access overseas markets. However, financial institutions have found ways for them to participate in global trends. For example, Invesco’s jointly managed ETF with Great Wall that tracks the Nasdaq has seen substantial buying. The ETF is trading at more than a 10% premium to its net asset value, leading to trading suspensions on the Shenzhen Stock Exchange where it is listed.
While mainland China investors may be focused on U.S. stocks, the strong performance of certain Chinese companies in the first half of the year showcases the potential for growth in the domestic market as well. By analyzing the top performers in the CSI 300 index, investors can uncover opportunities in sectors like artificial intelligence and high-end circuit boards. Despite challenges in the overall market, there are still bright spots for savvy investors looking to capitalize on emerging trends in China.
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