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Tap Into China AI Boom With This ETF

On the global artificial intelligence (AI) stage, China and the U.S. are viewed as the clear front-runners. By some estimates, China is leading.

Thanks in large part to the stellar performances of the “Magnificent Seven” stocks, many U.S. investors may believe the AI investment thesis is best accessed via domestics. That scenario could be amplified as broader China equity benchmarks disappoint.

However, there are avenues via which U.S. investors can home in on China AI plays. And that objective is made easier with ETFs such as the KraneShares Hang Seng TECH Index ETF (KTEC). The fund is benchmarked to the Hang Seng TECH Index. While that gauge is home to just 30 stocks, it’s relevant in the China AI conversation.

KTEC Has China AI Goods

Regarding specific KTEC holdings that power the ETF’s AI credentials, top-10 holding Baidu (Nasdaq: BIDU) stands out. Baidu, which accounts for 4.57% of the fund’s portfolio, was once referred to as “the Google of China.” That was due to its dominant perch in that country’s internet search market. Like Google parent Alphabet here in the U.S., Baidu boasts impressive AI credentials.

“Baidu is integrating its ChatGPT-like Ernie chatbot with Samsung’s new Galaxy S24 smartphones, and has a strategic collaboration with Honor, a smartphone brand spun off from Huawei,” reported Evelyn Cheng for CNBC.

Some analysts believe Baidu has AI talent on par with Alphabet. That could facilitate opportunities in the burgeoning AI internet advertising market. Morgan Stanley, which dubbed Baidu the “best AI play in China Internet,” sees the company capitalizing on AI cloud integration with other disruptive technologies. Likewise, JPMorgan China internet analyst Alex Yao believes Baidu’s AI internet ad revenue can surge 7% this year.

“He predicts generative AI ads will bring 2 billion yuan in revenue for Baidu this year, for a total AI contribution of more than 9 billion yuan to the company — which isn’t yet fully priced in, according to a report earlier this month,” according to CNBC.

Another KTEC holding with AI momentum is Kingsoft Office, which accounts for 1.22% of the ETF’s roster. The maker of enterprise software is deploying generative AI in some of its products. Some analysts believe the company could eventually achieve the scale necessary to become a more prominent China AI player. AI could be additive to Kingsoft’s personal office, authorization, and internet advertising services.

For more news, information, and analysis, visit the China Insights Channel.

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