Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
Chief Investment Strategist
China’s fourth plenum set the stage for its next five-year development plan (2026–2030), laying out an ambitious agenda to transform the economy into a modern industrial powerhouse. The key message: technology and manufacturing are the new backbone.
The plan calls for breakthroughs in core technologies—from semiconductors and AI to quantum computing, new materials, aerospace, and clean energy. The National Development and Reform Commission (NDRC) labeled this drive as “essential for modernization,” echoing President Xi Jinping’s call for “high-level self-reliance” and “fine and efficient” growth in science and technology.
At the same time, policymakers pledged to boost consumption, unify the domestic market, and address structural inefficiencies. Together, these measures signal a shift toward policy-led innovation and self-sustained growth, a clear response to ongoing global trade tensions and tech restrictions and a desire for greater economic independence.
The announcements initially lifted sentiment, with both the Mainland and Hong Kong indices rallying on renewed optimism. However, valuation is fast becoming a headwind.
The Hang Seng Tech Index now trades at a forward P/E in the low 20s — close to its five-year average of 23x. While that still trails the Nasdaq 100’s 31x, individual chipmakers tell a different story: Hua Hong trades above 100x forward earnings and SMIC around 80x, compared with Intel’s ~65x and Nvidia’s ~30x.
The rally has been powerful— with Hang Seng Tech Index up 35% YTD, outpacing the Nasdaq 100’s 19% gains, but earnings have not kept pace. Most gains have come from offshore tech listings, while onshore A-shares remain flat, highlighting that the recovery is uneven and sentiment-driven rather than broad-based. Bloomberg consensus sees a 25% EPS decline for Hang Seng Tech in 2025, followed by a 44% rebound in 2026.
In this context, policy optimism may already be priced in, leaving the next phase dependent on earnings delivery—particularly from domestic chipmakers, automation firms, and AI infrastructure players capable of turning policy momentum into profits.
China’s tech leaders are increasingly aligning their business strategies with national priorities, particularly under the government’s “AI Plus” initiative, launched by Premier Li Qiang in 2024. The program aims to embed artificial intelligence across all sectors of the economy, from manufacturing to public services, to drive productivity and technological self-sufficiency.
While this top-down approach could support long-term economic transformation, it also means that private-sector tech platforms are prioritising nation-building over near-term profitability. Many companies are diverting capital toward government-backed AI projects and infrastructure rather than maximising shareholder returns.
In effect, the rollout of “AI Plus” is being co-financed by the shareholders of China’s largest tech firms, who may need to wait until these investments yield commercial value or until more profitable export markets open up. This trade-off underlines a broader theme in China’s market structure — policy alignment often takes precedence over profit optimisation in the short term.
For investors tracking the sector, Saxo’s China AI Shortlist highlights key stocks and ETFs positioned across the AI, semiconductor, and automation value chains.
China’s policy commitment to technology leadership is clear—but so is the market’s rerating. The next leg of the rally will depend less on policy promises and more on profit proofs.