With the bulk of Chinese technology companies having already released their earnings, abrdn's China equity investment manager, Chu Ming-yu, shared in an interview that the firm retains a cautiously optimistic stance on the sector over the medium term, though expectations are growing for greater divergence in individual stock performance.
The AI investment narrative is gradually shifting away from model development, computing power, and capital expenditure toward a sharper focus on commercialization and earnings realization. Following the earnings season, investors should pay close attention to three key areas: whether future earnings forecasts are being revised upward, whether AI-driven revenue and profit growth can justify the corresponding capital outlays, and whether core business operations are facing sustained pressure from industry competition or the broader macroeconomic environment.
Chu noted that the core businesses of Chinese tech companies remain broadly stable, with AI and cloud computing emerging as new growth engines. However, several major technology leaders have significantly boosted their AI-related capital spending, which is putting short-term pressure on profits and free cash flow. As a result, the market's next focus will be on whether these investments can translate into tangible revenue, earnings, and cash returns.
Regarding stock selection, Chu emphasized that investors should prioritize platform leaders that demonstrate solid core operations, genuine AI application scenarios, a clear path to returns on capital investment, and reasonable valuations.
On the topic of persistently elevated long-term US Treasury yields, Chu acknowledged that higher yields raise corporate financing costs and increase the discount rate applied to equity valuations, exerting some pressure on global stock markets—particularly growth stocks with high valuations and earnings concentrated in the future. Nevertheless, he believes the impact on the Hong Kong market remains manageable. This is primarily because Hong Kong equities are not highly valued, and several internet and consumer leaders have already undergone deep corrections, meaning negative factors related to interest rates and fundamentals have been partially priced in. He expects the market to trade in a broad range with heightened volatility going forward.
Chu added that, compared to interest rate movements, the medium-term performance of the Hong Kong market will depend more heavily on fundamental improvements and earnings growth, with individual stock performance likely to diverge further. Should mainland macroeconomic policy support be stepped up and gradually take effect, leading to improvements in consumption and corporate earnings—while AI investments begin to convert into actual profit returns—the Hong Kong market still possesses room for further recovery.