This article first appeared in The Edge Malaysia Weekly on February 2, 2026 - February 8, 2026

WITH the world opening its eyes to developments in Chinese artificial intelligence (AI), following last year’s DeepSeek surprise on global markets, Amundi Investment Institute sees opportunities in being more constructive about China and Hong Kong equities as portfolios are being recalibrated globally beyond US assets.

Aidan Yao, Amundi Investment Institute senior Asia strategist, sees more global investors drawn by improving valuations, policy support and structural growth potential in sectors driven by developments in Chinese AI. The upward potential, he reckons, should draw more openness towards understanding what he calls the “new China”.

“The story about China is very confusing to a lot of people,” Yao tells The Edge, describing China as one of the most misunderstood markets among global investors. “We are actually positive on China.”

Yao explains that investors often struggle to reconcile weak economic data with the strong performance of Chinese and Hong Kong equities over the past year. “The markets and the economy are actually trading on two different logics.”

China’s economy is still weighed down by what Yao calls the “old China”, referring particularly to the real estate sector and its long supply chain, which continues to be a drag on household balance sheets and consumer confidence.

“Chinese households have more than 60% of their wealth tied to real estate,” he says. “If that market doesn’t stabilise, it really hurts consumption intentions.”

Equity markets increasingly trade, however, on a different set of forces. “Since late 2024, we have seen the market turning around very strongly,” Yao says. “That turnaround is supported by new China.”

This “new China” is defined by sectors such as AI, technology, innovative drugs and new consumption patterns.

“These are secular trends,” Yao emphasises. “They are not going away anytime soon.”

He adds that medium- and long-term policy direction aligns with these sectors, citing Beijing’s latest five-year plan. “If you look at the top objectives of the new five-year plan, No 1 is technology, No 2 is self-reliance in high-end manufacturing, and No 3 is consumption.”

Beyond fundamentals, Yao highlights liquidity as a key support for Chinese equities. “Chinese households have about RMB160 trillion [RM90.5 trillion] worth of deposits sitting in banks,” he says, describing a state in which investors have more money than there are assets to invest in.

“Property is no longer a viable option, fixed income interest rates are very low, and the capital account is closed,” Yao explains. “Equity markets are really the only market with the depth and scale that can accommodate that wealth.”

Policy support has also been skewed towards financial markets since late 2024.

“Support for markets is a lot stronger than support for the real economy,” Yao says, pointing to state-backed equity purchases, incentives for insurers and pension funds to raise equity exposure and measures to boost broker leverage.

“You have policy support, liquidity support and fundamental support That gives the market the potential to go higher.”

Yao acknowledges that Chinese equities had rallied strongly from their lows in 2024, but he insists that valuations remain attractive relative to peers. “At the bottom, China trades at a historically low valuation,” he says.

While much of the rebound has been driven by re-rating rather than earnings growth, Yao says absolute valuations remain reasonable. “The CSI 300 trades about 14.5 times earnings and MSCI China around 12.5 times,” he says. “Relative to developed markets, China still trades at a discount of about 40%.”

Foreign investor sentiment improved alongside market performance. “The attitude of foreign investors towards China changes,” Yao says. “The market itself forces people to change.”

He adds that geopolitical perceptions have also evolved. “In the past, people attached a geopolitical premium to US markets and a discount to China. That discount is being scaled back. As a result, very few people now talk about China being uninvestable.”

Sentiment is improving in Hong Kong as well, particularly in the primary market. “The IPO (initial public offering) pipeline looks very strong,” Yao says. “Last year, Hong Kong reclaimed the world’s No 1 spot for IPO activity.”

He attributes the revival to both pent-up demand and the rapid rise of China’s AI ecosystem. “AI is a very recent phenomenon. You have a lot of young start-ups in need of capital to support their growth. With limited private funding channels, going public becomes the natural route.”

Foreign investor appetite for Chinese IPOs is also rising, reinforcing Hong Kong’s role as a gateway for global capital.

At the same time, Yao points out that Hong Kong-listed H-shares continue to offer compelling value. “For dual-listed companies, their Hong Kong stocks still trade at a 20% to 30% discount,” he says. “They pay the same dividend.”

Given the divergence in China’s economy, Yao urges investors to be selective. “China is a K-shaped economy,” he says. “The top end of the K does exceptionally well, but the bottom end still struggles.”

As such, he advocates a barbell approach. “On the growth end, you want AI, technology and innovative drugs. On the defensive end, you want high dividend-paying stocks such as banks, brokers and large SOEs (state-owned enterprises).”

Holding dividend-paying stocks provides balance, he adds. “If a company distributes profits as dividends, it means it has strong cash flows and a solid balance sheet. That helps investors sleep at night.”

Yao says the improving outlook for China and Hong Kong fits into a broader reassessment of global asset allocation, as investors begin to diversify away from an excessive reliance on US markets.

“If you look at global portfolios today, they are very concentrated in US assets,” he says.

According to Yao, the imbalance reflects years of capital inflows into the US, following the Global Financial Crisis. “Between 2010 and 2024, about US$40 trillion of global capital flooded into the US,” he says.

The result is a structural mismatch between economic weight and market representation. “The US economy is about 26% of the world,” Yao says. “But the MSCI World Index is 72% US.”

The same pattern is evident in bonds, he adds. “In the Bloomberg Global Aggregate Index, the US is more than 40%. For an economy that is only a quarter of the world, that’s a very heavy concentration.”

Yao stresses that Amundi is not calling for a sharp downturn in US markets. “We are not saying the US market is going to collapse,” he says.

He argues, however, that the pillars underpinning US exceptionalism are weakening. “The exceptional economic performance and policy support are no longer in place.”

Yao also warns against overly concentrated bets on US AI. “The average global portfolio is very overweight in US AI,” he says.

Given the uncertainty over technological leadership, he argues that diversification makes sense. “Who is going to win this AI race? No one really knows. It only makes sense to place money on both China and the US.”

He adds that AI opportunities extend well beyond mega-cap tech firms. “AI is a transformative technology. It impacts utilities, energy, healthcare, industrials — the field is wide open.”

Yao highlights changes in the innovation landscape. “For a long time, the US has held a monopoly in AI development. That monopoly no longer exists.”

While differences remain between US and Chinese approaches to AI, Yao says the competitive gap is narrowing. “The US is no longer the only player. The market assigning a monopoly premium to the US needs to reconsider that pricing.”

These shifts, he continues, signal a broader structural transition. “It is no longer a unipolar world dominated by the US. We are entering a multipolar world.”

That change already shows up in market performance. “Last year, the S&P 500 rose about 18%, but Europe and emerging markets actually outperformed the US.”

Amundi does not see this as a one-off occurrence. “We don’t think that’s an aberration. We think it’s the start of a longer-term trend,” Yao says, reiterating his call for diversification. “If your starting point is a very overweight US position, you need to think about recalibrating your portfolio.”

Yao acknowledges that portfolio rebalancing is constrained by benchmarks. “That’s more art than science,” he says. “For passive investors, you go with the index. For active investors, maybe you can go from 72% US to 65%.”

Yao advocates moving towards a more balanced portfolio allocation that better reflects global realities. “If you build a global portfolio to capture global GDP (gross domestic product) and wealth, around 50% US makes sense. The other 50% should be Europe, China and the rest of the emerging markets.”

He believes the case for diversification is driven more by valuation and fundamentals than geopolitics. “This is not primarily a geopolitical call. It’s the rationality of diversification.”

After years of underweighting Europe and Asia while overweighting the US, Yao says, global capital allocation has begun to adjust. “We expect that trend to continue.” 

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