Summary of Key Points
Recently, there have been significant fluctuations in global technology stocks, particularly in the chip sector, which have spread from the decline in the U.S. semiconductor index to the Asia-Pacific markets (with substantial corrections in the Korean stock market and A-share tech sectors). However, foreign institutions generally believe that there are still structural opportunities in the tech sector. The investment logic is shifting from a broad-based rally chasing hot topics to a more selective focus on niche segments with proven profitability. They are particularly optimistic about areas such as China's AI infrastructure (electricity, optical communications, etc.), domestically produced chips, and resource assets. At the same time, foreign investment in Chinese technology is moving away from a bet on the overall market performance to a focus on identifying high-quality companies, with an emphasis on technological autonomy rather than relying on consumer traffic dividends.
I. Global Tech Stock Volatility: The Chip Sector as a Hard Hit Area, Panic Spreading Across Markets
Global tech stocks have been experiencing extreme volatility, similar to a roller coaster ride: the Philadelphia Semiconductor Index in the U.S. fell by 2.08% overnight, with a sharp sell-off in the memory chip sector; followed by a significant drop in the Korean stock market, where SK Hynix (a leading memory chip company) lost 11%, and Samsung Electronics fell more than 8%. The A-share tech sector was also affected, with the Sci-Tech 50 index closing down 4.02%, and companies like Lanqi Technology and GigaDevice Technologies experiencing limit-downs.
Why the decline? Goldman Sachs suggests that some sub-sectors of AI (such as the semiconductor supply chain) have become overheated, with valuations significantly higher than historical levels and those of global peers, and funds are concentrated in a few stocks, increasing leverage risks. In simple terms, the prices have risen too rapidly, and now funds are undergoing a period of cooling and adjustment.
II. Shifting from Broad-Based Growth to Selective Investment: Foreign Investors No Longer Blindly Chasing Tech Stocks
Previously, tech stocks experienced broad-based growth—any company related to AI or chips would see price increases. However, foreign institutions are now more selective:
- Morgan Stanley funds have observed that due to the high volatility in the tech sector, some capital is shifting to traditional industries, but it remains challenging for these sectors to experience overall growth as policies continue to favor technology.
- Lubomir Fund notes that AI hardware (such as chips) has seen slower growth, and profit expectations have weakened. In contrast, Chinese tech companies are expanding more steadily, with healthy cash flows. Additionally, the domestic computing infrastructure and domestically produced chips have their own growth momentum and are less affected by global economic cycles.
- Institutions are now focusing on companies in "hard technology" niche segments with proven profitability and reasonable valuations. They are not buying all chip stocks but rather those that can generate real profits at competitive prices.
III. Changes in Foreign Investment Logic for Chinese Technology: From a Bet on the Overall Market to Focusing on High-Quality Companies
In the past, foreign investors bought Chinese assets in hopes of benefiting from the overall market growth (e.g., consumer stocks during economic booms). Now, they are more focused on identifying individual companies with core competitiveness to achieve excess returns. They used to value consumer traffic dividends (e.g., internet platforms) but are now more interested in technological autonomy (e.g., domestically produced chips and AI infrastructure).
For example, Goldman Sachs points out that Chinese stocks show stronger cyclical profitability, and the diversification of the A-share market has not yet been fully recognized by international investors. JPMorgan Chase also mentions that the MSCI China Index could see earnings growth of 10%-20% in 2026, with attractive valuations.
IV. Key Areas of Interest: AI Infrastructure, Domestic Chips, and Resource Assets
Despite the volatility in tech stocks, foreign institutions remain optimistic about the long-term prospects of AI, especially in these niche areas:
1. AI Infrastructure: Industries such as electricity (required for AI servers), optical communications (data transmission), semiconductor equipment, and power cooling have significant potential over the next 3-5 years. Goldman Sachs highlights that Chinese companies have global competitive advantages in these areas.
2. Domestically Produced Chips and Computing Power: Lubomir Fund believes that domestic computing infrastructure and chips have their own growth momentum and are less affected by global economic cycles.
3. Resource Assets: Capital expenditure is shifting from tech companies to sectors like copper mining and energy, as AI requires these raw materials.
4. European Bonds: Lubomir Fund is also positive about European bonds due to higher interest rates and stable returns.
Goldman Sachs recommends reducing holdings in Korean AI assets and increasing exposure to A-share markets, noting that there has been a net outflow of foreign capital from the Korean stock market (over $100 billion since 2026), while A-share valuations are more attractive and earnings are recovering quickly.
V. Capital Movements: Northbound Funds Increasing Holdings in the Electronics Sector, Foreign Investors Shifting to A-Shares
Looking at capital flows:
- Northbound funds held a market value of 3.13 trillion yuan in A-shares by the end of the second quarter, an increase of 550 billion yuan from the first quarter, with a particularly strong 107% increase in holdings in the electronics sector (an additional 405.3 billion yuan).
- Global funds have withdrawn over $100 billion from the Korean stock market, causing the Korean index to fall by more than 20%. At the same time, foreign investors are turning to A-shares. Goldman Sachs suggests gradually increasing holdings in A-shares and certain H-share internet stocks due to their lower valuations and expected profit recovery.
European investors, although on summer break, remain interested in Chinese AI stocks, focusing on domestically produced products, domestic capital expenditure-related targets, and leading companies with reasonable valuations.
Conclusion
The recent volatility in global tech stocks is a short-term adjustment, but foreign institutions see structural opportunities. When investing in tech stocks, it's no longer about buying without discernment; instead, one should focus on niche segments with proven profitability, reasonable valuations, and technological advantages—such as AI infrastructure, domestically produced chips, and resource assets. For Chinese technology, the focus of foreign investors is shifting from relying on consumer traffic dividends to emphasizing technological autonomy and identifying high-quality companies. This represents a long-term shift in their investment approach.