UBS: Valuations of China's AI tech hardware near historic lows, risk-reward turning more attractive

On October 28, UBS published a China equity strategy report stating that after the recent technology-stock-led correction, major Chinese indices have fallen 18% year-to-date, while the AI-related tech hardware stocks tracked by the bank have risen only 9% this year. The bank believes that concerns over AI fundamentals have been overamplified, valuations are already near historical lows, and the risk-reward profile has again become attractive; investor attention may pick up at year-end as they rebalance portfolios for the new year. The bank noted that earnings growth for tech hardware remains strong, with earnings forecasts for most AI tech stocks raised by 12% to 15% over the past three months. However, valuations are near historical troughs and imply a sharp slowdown in future earnings growth. Historically, when valuations reached similar levels, the relevant stocks rose an average of more than 50% over the following 12 months. The bank's crowding and financing data show that net "hot money" positioning has fallen back to early-year levels, the short-selling ratio for Hong Kong stocks is also near a historical high, and short selling in some AI tech hardware stocks has increased recently.