HONG KONG/NEW YORK CITY: Global investors are increasingly turning to Chinese artificial intelligence stocks, seeking diversification and fresh growth as concerns mount that lofty valuations have inflated a potential bubble in U.S. tech markets.

Beijing's push for technological self-reliance has also bolstered interest in China's AI sector. Authorities have fast-tracked high-profile listings of domestic chipmakers, including Moore Threads and MetaX, both of which debuted this month and are being touted by investors as local challengers to U.S. giants.

Foreign investors say China is narrowing the technology gap with the United States as policy support intensifies for AI hardware and semiconductor firms, encouraging bets on Chinese companies just as Wall Street valuations face increased scrutiny.

UK-based asset manager Ruffer said it has "deliberately limited exposure" to the Magnificent Seven U.S. tech stocks and is instead looking to expand positions in Alibaba to gain exposure to China's AI growth.

"While the U.S. remains the leader in frontier AI, China is rapidly narrowing the gap," said Gemma Cairns-Smith, investment specialist at Ruffer. "The moat may not be as wide, or as deep, as many think ... The competitive landscape is shifting."

Ruffer is accessing the theme through Chinese technology groups such as Alibaba, which operates an AI chip unit, runs the Qwen large language model, and is investing heavily in cloud infrastructure.

Global asset managers are increasingly eyeing Chinese AI firms as startups list in mainland China and Hong Kong, riding investor enthusiasm sparked by the rise of DeepSeek, often described as China's answer to ChatGPT.

UBS Global Wealth Management this month rated China tech as "most attractive," citing investors' desire for geographic diversification alongside China's "strong policy backing, technological self-reliance, and rapid AI monetization."

The Nasdaq currently trades at about 31 times earnings, compared with a multiple of 24 for Hong Kong's Hang Seng Tech Index, which includes AI-linked stocks such as Alibaba, Baidu, Tencent, and chipmaker SMIC.

U.S. investment adviser Rayliant helped launch a Nasdaq-listed fund in September offering exposure to what it described as "China's versions of stocks like Google, Meta, Tesla, Apple, and OpenAI."

KraneShares Chief Investment Officer Brendan Ahern said the rapid rise of Chinese AI chipmakers such as Cambricon highlights the scale and speed of innovation across China's semiconductor sector.

"The element of this race narrative, this urgency, is to the benefit of the companies," he said, referring to the Sino-U.S. tech rivalry. "It's like yelling fire, right? When you make it an emergency, you get a lot of attention."

KraneShares' KWEB exchange-traded fund, which invests in offshore-listed Chinese stocks including Tencent, Alibaba, and Baidu, has grown by roughly two-thirds this year to nearly US$9 billion. Another KraneShares ETF focused on mainland tech stocks has also expanded.

Jason Hsu, founder of Rayliant Global Advisors, said the U.S. leads in innovation while China benefits from strengths in engineering, manufacturing, and power supply. Rayliant has partnered with China Asset Management to launch a Nasdaq-listed ETF betting on Chinese companies with transformative technologies.

U.S. tech restrictions have "now forced China to pump money into hard technology and invent from scratch," Hsu said. "For investors, the prudent and wise strategy is to capture AI opportunities and manage uncertainty through diversification."

MetaX shares jumped 700 percent in their Shanghai debut last week, following a 400 percent surge by Moore Threads earlier this month. Still, some fund managers remain cautious.

"None of the chip companies that are currently listed have any sort of valuation support and are almost entirely driven by hype," said Kamil Dimmich of North of South Capital.

Carol Fong, group CEO of CGS International Securities, said investors should selectively add beneficiaries of China's self-reliance push while maintaining exposure to global leaders.

There is rising demand for "potential leaders in high-tech segments such as robotics and AI," she said, but investors should "balance exposure in the current fragmented, geopolitics-driven chip cycle."