Portfolio Manager explains how scale and power make China a corollary, and how fundamentally different structures make this sector a different play
Each month at WP we offer a slate of articles and content pieces that go deep on a particular topic. This March we’re focusing on global markets.
An extended period of US market dominance is some of what has motivated a widening of investment horizons in recent years. Seeking returns streams and diversification away from tech-heavy US indices, investors have moved into European financials, Canadian energy and mining stocks, and Japanese industrials. Investors have also sought out other was to play the tech sector, notably the ongoing rise of generative AI. In trying to find an equity play for AI beyond the US, investors have largely alighted on one other country: China.
China, explains Ken Chen, Portfolio Manager for Index Strategies at Global X Canada, offers the only narrative that compares to US tech. Other markets like South Korea, Taiwan, and Europe have lacked the combination of scale, domestic consumption, competitive moats, and AI infrastructure found in both the US and China. While some corollaries might be cobbled together from smaller markets, access is expensive and complicated. China offers a different AI story that is, increasingly, all listed in Hong Kong. For all its similarities, however, Chen emphasized that Chinese tech comes with some core distinctions for advisors to stay mindful of.
“A lot of people have been doing this for decades, thinking of Chinese companies and trying to relate them directly to some sort of US equivalent. For example, trying to relate companies like Tencent, Alibaba directly to Amazon. And I think the issue there, and this is reflected in the valuation of Chinese versus US tech, is that their underlying story is actually different,” Chen says. “US firms spend a lot more in R&D versus Chinese tech, roughly double the size actually percentage wise. And they also focus on very different things. The US firms tend to do R&D and spend time and resources more in foundational technologies, stuff that is actually driving the edge of the science. While the Chinese firms mainly focus on R&D in commercialization and trying to optimize the engineering part, really trying to see how they can scale these technologies into commercialized and consumer-facing products.”
US contrasts & corollaries
Through much of 2025, Chinese tech stocks on the Hang Seng index were a massive source of positive equity performance. Chen explains that a mixture of the emergence of Chinese AI like DeepSeek, as well as widening global interest among investors, and attractive valuations relative to US tech stocks, all drove performance. Since then, however, Chinese tech has pulled back significantly, demonstrating a relative beta to US tech names, which have also lagged recently. Chen notes that this beta to US tech seems to be more pronounced on the downside than the upside.
Despite that dynamic, Chen emphasized the core differences in a Chinese tech exposure, notably stemming from what Chinese tech develops. While US tech goes for moonshot technologies, Chinese tech seems to aim at what makes this tech more efficient, as demonstrated by the success of DeepSeek achieving similar output to US LLMs with less compute power or electricity required. Chen notes that while China actually has an advantage over the US in the scale and resilience of its electricity grid, that excess power won’t be used to ‘brute force’ LLMs into better outputs than US equivalents. Chen contrasts the PE multiples for Chinese and US tech, noting that Chinese tech trades at roughly 20x earnings, while US tech trades for 30x, reflecting how investors value research into potentially game changing tech versus research into marginal improvements.
Turning a corner
Chen explains that Chinese tech turned a corner in 2025, as China’s great ‘period of uncertainty’ came to an end. Between 2021 and 2024, COVID related crackdowns and government intervention into the private sector depressed valuations and sparked, among many investors, that the heavy hand of the Chinese State would exert too much control over innovative enterprises. A return to more shareholder-friendly policies in recent years, alongside the resurgence of emerging markets, and the rise of Chinese tech as a diversification play resulted in what Chen describes as a watershed for Chinese tech.
Domestic investors have played a crucial role in the Chinese tech story, too. Where domestic investors hadn’t been much of a force for tech stocks listed in Hong Kong, new programs connecting exchanges in Shanghai and Shenzhen with Hong Kong have allowed for what’s called “southbound flows.” That flow of capital from northern mainland cities south to Hong Kong hit a record in 2024 before doubling that record in 2025. The dynamic introduced by these domestic investors may further entice foreign capital.
Can Chinese tech diversify?
Because of the aforementioned beta to US tech downside risk, Shen notes that Canadian advisors and investors shouldn’t expect Chinese tech to diversify day to day performance. What it can diversify, however, is innovation risk. Because Chinese tech is more focused on execution and commercialization, it’s more insulated if some of the promises driving hype for US AI stocks fail to materialize. Advisors can use that dynamic to complement other emerging market allocations, understanding that this is a space that most Canadian investors continue to play passively.
“As Canadian investors start to get into global investments a bit more, the point on Chinese tech is that it provides a high beta and more capital efficient allocation to emerging market and international exposure. So it's a complement to your day-to-day EAFE emerging market allocation,” Chen says. “So I see these things as high beta and capital efficient allocations that you can put in your portfolio when you want, a diversifier that doesn't take too much of the portfolio, but it does the job of diversification.”
