T. Rowe Price's China New Horizons Equity Strategy Fund Manager Zheng Wenli shared insights on potential investment opportunities in Chinese equities. The recent rise of AI agents has significantly increased token usage, accelerating revenue growth for model providers and cloud service companies, creating a positive feedback loop that enhances the sustainability of AI investments. Industry chain research indicates the current AI growth cycle is likely to persist for the next one to two years. The most compelling investment opportunities within the AI industry chain remain concentrated in chips/hardware and energy-related segments. These areas feature relatively clear business models, high earnings visibility, and reasonable valuations. Two types of opportunities are particularly noteworthy. The first category includes sub-sectors driven by continuous specification upgrades, where product value is rapidly increasing amid favorable competitive landscapes, such as optical components, power supplies, printed circuit boards (PCBs), and chip testing. These are expected to outperform overall AI investments over the next one to two years. The second category involves supply-constrained or bottleneck segments, where companies typically possess stronger pricing power and profit expansion potential, including semiconductor substrates, PCB materials, and power generation equipment. However, these opportunities require more flexible position management. Regarding technological developments, beyond continued optimism for optics and power supplies, the proliferation of AI agents is accelerating server CPU demand. Additionally, clean rooms may become a critical bottleneck within the next two to three years. Investment evaluations of AI-related stocks focus on two core dimensions: current cycle positioning and technological development paths—identifying which segments of the AI ecosystem are most likely to benefit in the next phase. Such assessments require deep research across the entire industry chain, including model developers, startups, cloud giants, chip designers, and hardware supply chains, integrating diverse information through global research platforms to uncover differentiated investment opportunities. Despite overall weak consumer performance in recent years, internal structural divergences are evident. Lower-tier cities have shown more resilience than first-tier cities, and significant differences exist across age groups: first-tier city middle-class consumers are affected by weak property markets, while younger generations and retirees demonstrate stronger demand in their preferred consumption categories. Although traditional consumer sectors generally underperform, structural opportunities exist in high-growth areas (such as tourism, entertainment, and IP-related consumption) and companies expanding market share through innovative business models (like discount retailers and new beverage brands). In the consumer sector, two main types of investment opportunities are highlighted. The first includes platform-type companies benefiting from structural growth trends, possessing scale and supply chain advantages that enable them to weather cycles, with growth driven by store expansion and same-store sales improvements, such as mall operators, hotels, and new beverage companies. The second category comprises companies driven by product and brand momentum, capable of rapid growth during favorable cycles but with lower sustainability, making flexible, active stock selection crucial.
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