Australian allocators revisit China as AI race heats up

Top Australian allocators have conceded that it might be time to rethink their underweight positions to China, a position that has characterised the portfolio of local asset owners, as the Asian superpower’s intensifying AI race with the US creates attractive opportunities.

But at the Fiduciary Investors Symposium Blue Mountains, hosted by Top1000funds.com’s sister publication Investment Magazine, the investors said they are still wary about the geopolitical and regulatory risks of China and uncertain about where future global growth will come from.

Jonathan Armitage, chief investment officer of the A$160 billion ($116 billion) Colonial First State which recently increased its emerging markets equities allocation to an overweight position, pointed out that a lot of investors are making decisions about China with “a set of criteria that weren’t financially driven”.

Armitrage recently took a trip to the world’s second-largest economy where he observed that while almost all forms of technological development in China are state-backed, a lot of investors “have not fully comprehended how powerful that will be”.

US President Donald Trump is on a state visit to China this week, accompanied by top figures in America’s technology and innovation industry including Nvidia’s Jensen Huang, Apple’s Tim Cook, and Elon Musk of Tesla and SpaceX, as well as Larry Fink, boss of the world’s largest asset manager BlackRock.

“[The Chinese government] is particularly focused on AI, but it’s [also] been around electric vehicles and another set of components around that,” he said. “In doing that, it has also organised the energy stack that sits behind it. When you get that all concerted and moving in one direction, that is very powerful.”

“They are running a very different model economically as well as politically [from the Western world]. But actually when it comes to technology, they’re running a very different model as well.”

But the difference in the approach to capital markets management between the US and China seems to be blurring, observed Sonya Sawtell-Rickson, CIO of the A$98 billion ($71 billion) HESTA.

“I don’t think we thought we would see the US government intervening in capital markets, challenging the independence in their central bank, challenging the independence of their judicial system, buying significant stakes in some of the largest companies in the US, and continuing to basically be a significant equity investor in a lot of the innovation economy,” she said.

“It’s feeling like an SOE market now. It has the potential to become more of an SOE market.”

Still, Sawtell-Rickson said that government support in equity markets could mean more positive momentum for US technology companies and others across key industrial sectors.

“It’s a different proposition to what we’re used to underwriting.”

Ali Parker, head of investment research and strategy at NSW state sovereign wealth fund TCorp, questioned whether Australian asset owners’ caution on China is still fit for purpose, and if it’s anchored in a geopolitical framework that no longer applies to the world.

“A lot of us are holding underweight positions to China because of the concerns about stranded capital from the Russia-Ukraine invasion,” she said.

“Is that thinking of three years ago that we should try and let go of and try and think forward to where we actually want to be exposed in future?”

But Parker also noted that global investors haven’t come to a consensus about where in the world future growth would come from. Despite tariff uncertainties and geopolitical turmoil originating from the US in the last 12 months, net investment inflows into the country stand at $130 billion during the period, she said.

“So I think it’s incredibly challenging for people to invest outside of an industry, a country, or a sector they know well, they’ve got strong relationships with and they feel comfortable with the regulatory environment.”

The silicon curtain

But for now, technologies like AI are still being leveraged as a tool for great power competition, and Armitage highlighted the emerging idea of the “silicon curtain”, referring to the growing global divide between US-led and China-led technological ecosystems. While US technology companies serve customers around the world, China is using its technologies as diplomatic tools with emerging economies, he said.

“If you’re a developing economy government, and you’re being offered DeepSeek and everything that comes with it effectively for free, whereas you are getting Western companies, or basically American companies, offering it at a very different set of economics, that [former offering] becomes very compelling.

Meanwhile, Chinese companies have also stepped up the game in their traditional strong suit, which is manufacturing. The view that Chinese companies only excel at manufacturing products at scale and cheaply is outdated, Armitage said, as they have also bolstered marketing and product service capabilities.

“I saw one example where a company that makes production line components will go to a client anywhere in the world within 24 hours if there’s a problem,” he said.

“That is a level of service that, first of all, I think a lot of companies would find difficult to replicate. If I was a European manufacturer, I would be pretty concerned that ability is coming through.”

“I think as we see these models and technology emerge that will become another component that we’ll have to think about.”