At the recent discussions in Davos, Switzerland, UBS fund managers outlined a growing trend among investors moving capital into Chinese technology companies. This shift is driven by multiple factors, including comparatively lower valuations in China, explicit government backing, and expansive fiscal policies occurring alongside broader cyclical market movements.
Mark Haefele, chief investment officer of UBS Global Wealth Management, conveyed that investors from regions such as the U.S., Europe, and Asia are increasingly viewing Chinese tech as a viable hedge against the rising U.S. dollar. He noted, "We appreciate the success evident in China's technology sector and the clear government efforts supporting it." Such support, combined with attractive valuation metrics, appears to be enticing more investors to diversify away from sole reliance on U.S. tech assets.
The technological landscape in China is quickly evolving to close the gap with the U.S. This is exemplified by strong market performances of firms like MiniMax and Zhipu AI, reinforcing investor confidence as Beijing aims to foster domestic tech champions. Though the U.S. maintains an edge in computational infrastructure and power, China's advancements seem driven by innovation accomplished within strict budget constraints.
Ulrike Hoffmann-Buchardi, Americas CIO and head of global equities at UBS, emphasized that broader cyclical factors are also instrumental in shaping market dynamics. Fiscal stimulus measures implemented globally are expected to uplift markets universally, presenting opportunities especially in those regions where valuations remain comparatively more attractive. She pointed out that relying solely on capital flows to prominent destinations, notably the U.S., may overlook potential risks in those markets.
Meanwhile, the U.S. market maintains a strong appeal grounded in expectations for robust earnings growth, particularly among mega-cap technology firms. Saira Malik, chief investment officer at U.S.-based asset manager Nuveen, remarked that "tech earnings are projected to grow at over twice the rate of the S&P 500 overall," reinforcing the U.S. market's leadership position. Nuveen projects the S&P 500 to reach 7,500 points, an approximate 8.5% increase from its recent close of 6,913.
Additionally, with key U.S. Federal Reserve meetings on the horizon, investors anticipate that benign inflation trends and decelerating employment growth could create conditions conducive to interest rate reductions later in the year. Malik commented, "As long as inflation remains somewhat controlled and employment markets slow, the path opens for potential rate cuts in the latter half of 2024." This evolving macroeconomic environment remains a critical factor in asset allocation decisions across markets.