According to data from the Institute of International Finance (IIF), foreign investment in Chinese equities from January to October this year surged to a four-year high, with inflows exceeding $50 billion in the first ten months. This marks a more than threefold increase compared to the $11.4 billion recorded for the full year of 2024.
Foreign investors are increasingly drawn to "innovative" Chinese tech stocks, fueling sustained interest in China's AI ecosystem amid the global AI wave. Despite recent skepticism over inflated valuations in the global AI sector, Chinese AI investments have demonstrated relative stability, avoiding widespread volatility.
Foreign capital continues to explore opportunities across China's AI industry, expanding from midstream technology and downstream applications to upstream infrastructure—including power, computing, metals, and energy storage—covering the entire supply chain.
**Diversifying Exposure Away from U.S. AI Stocks, China’s Discount Attracts Inflows** EPFR Global data shows that after the U.S. tariff dispute in April, foreign net buying of Chinese equities trended upward, with buy orders accounting for about 55% of transactions. While active funds sold more Chinese stocks this year, passive inflows have more than offset the impact. Global funds remain underweight on Chinese AI, signaling significant future investment potential.
Market observers attribute the surge in foreign interest to breakthrough AI products like DeepSeek, which have reignited confidence in China's AI sector. By October, foreign inflows reached $50.6 billion, far surpassing last year's $11.4 billion but still below the 2021 peak of $73.6 billion.
**Reassessing Profit Prospects Amid Global AI Cooling** The recent earnings slump in U.S. AI giants—including Nvidia, Microsoft, and Tesla—wiped over $700 billion in market value, with the Nasdaq dropping 3% in a week, its steepest decline since April. Goldman Sachs warns of a potential 20% correction in AI-related assets, while the IMF and Bank of England liken current valuations to the dot-com bubble.
Yet, capital hasn’t abandoned AI; instead, it’s shifting to reasonably priced infrastructure plays. Bloomberg data shows Chinese solar, power equipment, and metal sectors outperforming with gains of 9-10% in a month.
**Foreign Focus on China’s AI Infrastructure** Historically, foreign investment in China’s AI sector centered on midstream tech and downstream applications, neglecting upstream infrastructure like power and computing. Macquarie analyst Charles Yonts notes that China’s AI infrastructure, previously lagging, is now rebounding, with valuations narrowing the gap with U.S. peers.
Bank of America projects China’s AI infrastructure market to hit $800 billion by 2030, absorbing a third of total AI capital expenditure. Power, manufacturing, and resource sectors are poised for revaluation.
**Key Sectors in Foreign Spotlight** - **Power**: China’s advantages—ample supply, low costs, and strong renewables—make it a leader in AI-ready power infrastructure. UBS forecasts an 8-9% annual growth in electricity demand, with AI data centers contributing 2.3 percentage points. - **Copper**: BNP Paribas highlights copper’s critical role in AI data centers, predicting China’s AI-driven copper demand will hit 1 million tons by 2030, accounting for 5-6% of global demand. - **Aluminum**: Bank of America sees demand doubling to 695,000 tons by 2030, driven by data center expansion. - **Optical Components**: Macquarie identifies optical modules as a high-growth niche, with revenue CAGR of 70% over three years as AI deployment shifts focus to network scalability.
As global AI valuations face scrutiny, China’s discounted tech stocks and robust infrastructure pipeline offer a compelling alternative for foreign investors.