Fund managers bullish on China

CHINA’S innovation-led industries are expected to offer global investors a wider range of opportunities as advances in artificial intelligence (AI), advanced manufacturing and healthcare reshape the country’s growth landscape.

With international fund managers reassessing their portfolios amid volatile markets, China’s expanding technology ecosystem, capital market reforms and diverse investment options are attracting renewed attention.

According to China Daily, several major global asset managers have increased their allocations to Chinese financial assets, citing the country’s innovation capabilities, corporate earnings potential and diversification benefits as investors grapple with uncertainty over inflation, interest rates and returns on AI investments.

The renewed interest was evident at a recent forum in Beijing hosted by the China Securities Regulatory Commission (CSRC) and organised by the Asset Management Association of China as part of the Annual Conference of Financial Street Forum 2026.

Jason Windsor, chief executive officer of British investment company Aberdeen Group plc, says China is becoming increasingly important to international portfolios.

“China is not simply another allocation within an emerging-market benchmark. It is a critical part of how global investors think about the future,” he says, highlighting China’s role in advanced manufacturing, AI, digitalisation, the energy transition and healthcare.

While volatility will remain a feature of investing in the country, he says investors need to distinguish short-term sentiment from longer-term business fundamentals, with China Daily quoting him as saying, “The discipline is to separate temporary changes in sentiment from lasting changes in fundamentals”.

French asset manager Amundi AM has increased its allocation to Chinese financial assets since September 2024, supported by an improving macroeconomic outlook and growing international interest in the country’s technological advances.

“This is especially more visible among our emerging-market and Asian funds, where we are ‘overweight’ on China,” Thierry Ancona, the firm’s vice-chair, says, according to China Daily.

Although some of Amundi’s global funds remained underweight on China, the firm has significantly reduced those positions.

German asset manager Allianz Global Investors has also turned more positive on Chinese equities, citing corporate earnings and opportunities in AI, robotics, automation, energy storage and medical innovation.

“We are ‘overweight’ now. Maybe, previously we were more ‘neutral’,” Michael Krautzberger, the firm’s chief investment officer for public markets, tells China Daily.

The shift comes as investors reassess AI-related valuations and the implications of inflation and interest rates for global markets.

Travis Spence, managing director and global head of exchange-traded funds at JPMorgan Asset Management, says China continues to offer long-term opportunities despite pressure on parts of its domestic economy.

According to China Daily, Spence notes that property, fixed-asset investment and consumption remain under pressure, while AI-related industries, high-end manufacturing and exports continue to expand resiliently.

The uneven performance across sectors creates opportunities for active fund managers to identify companies capable of generating returns despite broader market volatility. Active management uses investment research and security selection to seek returns above a benchmark.

Beyond technology giants

China’s AI ecosystem is emerging as a distinctive investment proposition, with opportunities spanning semiconductors, computing infrastructure, data centres and electricity supply.

Jason Yu, Schroders’ chief executive officer for Hong Kong and wealth lead for Asia, tells China Daily that Chinese AI investments could be undervalued compared with opportunities elsewhere.

“If you compare that globally, we could argue that the AI opportunities in China are currently undervalued,” he says.

His assessment offers an alternative for investors whose exposure to the global AI boom is concentrated in a handful of overseas technology giants.

China Daily quotes Yu as saying that China has one of the world’s largest AI value chains, covering semiconductors, AI infrastructure, data centres and the power supplies needed to support them.

These segments have different investment requirements and business cycles, allowing investors to diversify across several layers of the AI economy. Chinese companies’ ability to deliver advanced technology at competitive costs could also support wider adoption and productivity improvements.

The opportunity extends beyond businesses developing AI models and applications to suppliers of computing equipment, infrastructure providers and companies supporting the expansion of digital capacity.

However, identifying sustainable earnings growth remains crucial. Investors need to assess whether companies can translate technological advances into commercial success, while considering capital expenditure, competition and valuations.

“I think what stands out is not just the technology of development itself, but the ability of some Chinese companies to apply technology at scale and translate innovation into greater efficiency, new products and competitive advantages,” Yu says.

Iqbal Khan, president of UBS Asia-Pacific, also highlights China’s deep industrial base, extensive application environment and advancing technological capabilities as foundations of its innovation economy, China Daily reports.

These strengths could support the adoption of new technologies across manufacturing, energy and other industries.

Wide investment choices

Beyond AI, innovative healthcare offers another potential source of structural growth.

Yu highlights Chinese biotechnology and pharmaceutical companies developing products in areas such as oncology and metabolic diseases. According to China Daily, he says a maturing innovation ecosystem and robust cross-border deal activity could support further earnings growth.

Licensing agreements and international partnerships could help Chinese drug developers commercialise intellectual property and expand their markets.

However, investors still need to consider research and development costs, regulatory approvals and the uncertainty surrounding the commercial success of new treatments.

Advanced manufacturing is another area attracting attention, particularly robotics, automation, electric vehicles and power equipment.

These industries are linked to efforts to improve productivity, modernise industrial processes and support the energy transition. Robotics and automation companies could benefit as manufacturers upgrade equipment, while electric vehicles and power equipment offer exposure to changes in transport and energy systems.

For fund managers, the challenge is to identify businesses with competitive advantages and the ability to turn innovation into sustainable profits, rather than simply buying into a broad technology theme.

Capital market reforms

China’s efforts to strengthen its fund industry are creating additional ways for investors to participate in its economic development.

According to China Daily, the CSRC recently approved the registration of the first batch of 18 actively managed exchange-traded funds (ETFs), supporting new fund products and bringing additional capital into the market.

The move forms part of a broader effort to shift the industry’s focus from expanding assets under management towards delivering better returns for investors.

Liu Xiaoyan, chairperson of the Asset Management Association of China, says a first-class investment institution requires more than a larger business or a wider range of products.

“The key lies in having the ability to create long-term value, generating long-term returns for investors, providing patient capital to the real economy and adding stability to the capital market,” she says.

Actively managed ETFs allow professional managers to select investments according to a strategy while retaining the trading flexibility of exchange-traded products. Their introduction could broaden investors’ choices and provide additional tools for portfolio construction and risk management.

Yu welcomes the CSRC’s approval of the first batch, telling China Daily that the products could expand the investment solutions available to clients.

The development also reinforces the push for stronger research capabilities, disciplined risk management and a greater focus on investment outcomes.

“Our philosophy is that only if we can create value for our clients, then we can grow,” Yu says.

Capital market reforms are also intended to improve financing access for innovative companies. Yu cites the Shanghai-based STAR Market’s sci-tech growth tier as an example of how businesses with genuine innovation potential could obtain public equity financing even before generating substantial profits.

Such access can help companies fund research, expand operations and commercialise new technologies, while giving investors a wider pool of potential growth businesses.

The Mainland-Hong Kong Mutual Recognition of Funds scheme offers another route to broader investment choices.

According to China Daily, Yu says it could give mainland investors access to a wider investment universe while allowing foreign asset managers to introduce more solutions to the market.

Schroders remains committed to participating in these initiatives and providing long-term investment solutions to mainland clients.

Returns take priority

China’s fund industry is seeking coordinated development of active and passive funds as it places greater emphasis on investor returns, according to China Daily.

Passive funds typically track an index, while active funds give managers greater discretion to select investments. Both approaches can serve different purposes depending on investors’ objectives, costs and risk tolerance.

The introduction of actively managed ETFs adds another option for those seeking professional security selection alongside exchange-traded access.

For global asset managers, success will depend on understanding local markets and identifying companies whose earnings prospects justify their valuations.

The divergence between China’s expanding technology industries and pressured property and consumption sectors makes company selection particularly important.

Retirement investing also requires a longer-term approach, with products designed to support clients through different stages of life.

These priorities reflect a broader effort to develop investment institutions that provide patient capital to the real economy while improving the quality of returns delivered to investors.

AI governance remains key

Alongside investment opportunities, financial regulators are calling for stronger oversight of AI as its use spreads across financial services.

According to China Daily’s reports on discussions at the 2026 Bund Summit in Shanghai and the Financial Street Forum in Beijing, regulators face the challenge of encouraging innovation while containing risks to financial stability and consumers.

Zhang Wencai, managing director and chief administrative officer of the World Bank Group, says the world had reached a critical juncture in AI use and governance, calling for greater international cooperation on standards.

A World Bank survey of 27 financial sector authorities in emerging markets and developing economies found that only 11% had adopted AI to support core supervisory functions.

Nearly half say they lack adequate systems, resources and processes to monitor AI developments and assess their impact.

Zhang says regulators need better-connected data and appropriately skilled staff. Financial institutions must also remain accountable for AI-driven decisions, including those involving technology supplied by external providers.

Sheila Bair, a member of the International Advisory Council of China’s National Financial Regulatory Administration (NFRA), urges financial institutions to adopt AI cautiously until regulators better understood its risks.

While AI can strengthen banks’ defences against cyberattacks, it can also give hackers new tools.

Other concerns include algorithmic bias in credit decisions, AI-enabled fraud and dependence on a small number of technology providers.

“It is absolutely essential that any use of AI be accompanied with clear governance, accountability and risk management,” Bair says.

She also calls for information-sharing protocols to help identify and counter malicious uses of AI that could disrupt financial transactions and infrastructure.

Andrew Sheng, another member of the NFRA’s International Advisory Council, says regulators need to keep pace with technological advances and develop real-time supervisory tools to detect opaque algorithms, market anomalies and emerging risks.

He also calls for clear rules on data ownership, access and security, alongside greater international cooperation to address differences in regulatory standards and coordinate responses to cross-border risks.

Xiao Yuanqi, vice-minister of the NFRA, says integrating AI into finance was a systemic transformation affecting business models, operations and corporate culture.

Financial institutions need to strengthen their internal research and development capabilities and build expertise in data, models and engineering, he says, while promoting collaboration across the industry and greater international cooperation on governance.