According to Business Insider, Jason Draho at UBS Global Wealth Management is telling clients to consider Chinese AI stocks as a diversification play. The $6.6 trillion asset manager sees Chinese tech as an attractive counterbalance to stretched US tech valuations. Draho notes these sectors actually have low correlation despite competing directly – like when DeepSeek’s chatbot release earlier this year sent US tech stocks plummeting. Chinese tech stocks trade at half to a third of US valuations according to Rayliant’s Jason Hsu, though Draho cautions they’re still expensive relative to their own history. The Invesco China Technology ETF has returned 38% this year, nearly doubling the Nasdaq 100’s 19% gain.
The diversification play that makes no sense
Here’s the thing that seems counterintuitive at first: you’re diversifying within the same sector. But Draho’s point about low correlation is actually pretty brilliant when you think about it. These aren’t two markets moving together – they’re competitors. When China wins, US might lose, and vice versa. That creates natural hedging. And let’s be honest, after the massive run-up in US AI stocks this year, who isn’t looking for some protection?
The valuation story isn’t simple
Now about those “cheap” Chinese stocks. Yes, they trade at significant discounts to US counterparts. But Draho makes a crucial point everyone misses – they’re still expensive relative to their own history. The Chinese market’s forward PE ratio has jumped from 11x to 14x in just a year. So you’re not exactly buying at the bottom. You’re buying relative value in a market that’s already had a decent run. That changes the risk calculation significantly.
The political reality check
Let’s address the elephant in the room – geopolitical risk. Draho mentions “domestic politics” as a different driver, but that’s putting it mildly. US-China tech competition isn’t just about market share anymore. We’re talking export controls, investment restrictions, and outright bans in some cases. Does that make Chinese AI stocks more volatile? Absolutely. But it also creates the kind of market segmentation that actually supports Draho’s low-correlation thesis. These markets are being forced apart by policy, which might make them even better hedges against each other.
So how do you actually play this?
The article mentions funds like the Invesco China Technology ETF (CQQQ) and iShares MSCI China Tech ETF (CTEC) as practical vehicles. That 38% return for CQQQ this year is attention-grabbing, no doubt. But here’s my question: is this a tactical trade or strategic allocation? Given the political risks and valuation concerns, this feels more like a tactical opportunity to me. You’re not buying and holding Chinese tech for decades – you’re using it as a hedge against US tech overheating. And honestly, with US valuations where they are, that might be smart portfolio management regardless of how you feel about China’s long-term prospects.
