Brendan Ahern, KraneShares CIO, believes that, while many global investors have focused on AI-related opportunities in Taiwan and South Korea, China’s semiconductor companies have received comparatively less investor attention, while its internet companies are at lower valuations relative to historical levels.

Brendan and Head of International Dr. Xiaolin Chen recently hosted a webinar to unpack what's driving China's AI momentum, why a recovery in internet stocks may be closer than many think, and how the KraneShares China Technology & Semiconductor STAR Market 50 Index UCITS ETF (Ticker: KSTR) and the KraneShares CSI China Internet UCITS ETF (Ticker: KWEB) are designed to capture both opportunities.

Below are expanded highlights from the webinar.

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China's Overlooked Role in the AI Supply Chain

Brendan opened by framing a central argument: global investors have significantly underestimated China's contribution to the AI supply chain.

US technology giants are forecast to spend approximately $800 billion on AI infrastructure this year, with estimates reaching as high as $1 trillion in the year ahead.¹

Most investors associate the resulting picks-and-shovels opportunity with a narrow set of names such as Nvidia and Micron in the US, SK Hynix and Samsung in South Korea, TSMC in Taiwan, and ASML in the Netherlands. We believe China belongs on that list.

Trade data released on the morning of the webinar showed that Chinese exports grew 27% year-over-year, up from 19% the prior month and well ahead of consensus expectations.² High-tech product exports reached 3.26 trillion RMB in the first half of the year, up 39% year-over-year, with electronic and computer components contributing 6.9 percentage points to total export growth. Chinese customs officials also confirmed that AI-integrated robots had shipped more than 10,000 units to over 90 countries in the first half of the year alone.³

"Investors have really overlooked China's significant role in the AI supply chain," Brendan said. "This is not just a South Korea and Taiwan story."

The reason for this blind spot, he believes, is largely structural.

When global investors look at China through mainstream benchmarks such as the MSCI China index, approximately 80% of the index is composed of Hong Kong and US-listed companies. Only 15.6% of MSCI China consists of companies listed on the Shanghai and Shenzhen exchanges, which is precisely where China's semiconductor and advanced technology ecosystem is concentrated. On the STAR Market's Science and Technology Innovation Board, 84% of companies operate in semiconductors, semiconductor materials, or semiconductor equipment.⁴

Brendan believes the Shanghai and Shenzhen markets do not get the attention they deserve because they only account for 15% of MSCI China.

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KSTR: Targeted Access to China's Onshore Technology Ecosystem

Xiaolin outlined why the onshore market represents a structurally different opportunity from the China exposure most global investors already hold.

China's technology investment cycle, she argued, is not a short-term market theme. It is embedded in the country's long-term industrial strategy, with a clear policy direction toward technology self-reliance across artificial intelligence, advanced communications, new materials, robotics, and quantum technology, with a commitment horizon extending to 2035.

"KSTR is not simply a tactical AI trade. It is a way to participate in the broader long-duration industrial transformation taking place within China's domestic market."

The STAR Market was specifically designed to support research-intensive companies in chip design, semiconductor equipment, advanced manufacturing, software, healthcare technology, and automation. This makes it fundamentally different from traditional China benchmarks, which are dominated by large offshore-listed internet and financial companies.

Xiaolin highlighted two particularly important characteristics of the KSTR portfolio:

1. Its revenue base is predominantly domestic
2. The earnings momentum is becoming real rather than aspirational

KSTR holdings have materially lower exposure to US revenues than the equivalent indices for Taiwan and South Korea, making the fund's performance less sensitive to the spending decisions of a small number of US technology giants and more closely tied to China's own technology investment and local supply chain development.

Several mainland-listed AI supply chain companies have reported or forecast strong year-on-year profit growth, indicating that the technology self-reliance theme is beginning to show up in actual company earnings.

For KSTR, the combination of domestic policy support, growing local demand, and improving company-level profitability suggests that China’s technology self-reliance initiative may be creating real commercial opportunities.

Xiaolin also pointed to a growing pipeline of future listings that could further deepen the investable universe, with Unitree Robotics among the names potentially heading toward a STAR Market listing, alongside companies in memory, chip manufacturing, and semiconductor equipment.

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The Valuation Disconnect in Hong Kong Internet Stocks

While KSTR captures the AI infrastructure buildout, Brendan turned to a very different opportunity. Leading Chinese internet companies, such as Alibaba and Tencent, appear to have been left behind by the AI rally despite building and deploying AI at scale. And this, he argued, is creating a potential value opportunity for investors willing to look.

The shift of global investment money out of Chinese internet stocks and into Taiwan and South Korea's semiconductor plays has left Hong Kong-listed technology companies at historically low valuations.

KWEB's valuation sits at the zero-percentile relative to the past 44 months, the lowest level since late 2022.⁵ Three stocks alone (Samsung, SK Hynix, and TSMC) account for roughly a third of the MSCI Emerging Markets index by weight.⁶ At the same time, Alibaba and Tencent together represent approximately 4% of the same benchmark.⁷

"Eight out of the ten top holdings [in MSCI Emerging Markets] are now either South Korean or Taiwanese. Only Alibaba and Tencent make the top ten and are basically 4% of the benchmark taken together."

The scale of the disconnect becomes striking when you look at individual companies.

Waymo, Alphabet's autonomous driving unit, recently raised capital at a $100 billion valuation. Baidu conducts a comparable number of autonomous driving rides each month, yet its entire business is valued at roughly $40 billion.⁸

Kuaishou's Kling AI video generation tool, which has been used to produce AI-driven content for internationally distributed streaming productions, is expected to carry a spin-off valuation of approximately $17 billion, roughly equal to Kuaishou's entire current market value.⁹

Alibaba's AI chip unit is expected to be worth around $30 billion as a standalone entity, yet Alibaba as a whole trades at a valuation that implies virtually no credit for its cloud and AI businesses.¹⁰

"With the market cap of Amazon or Alphabet, you could buy all 31 companies in KWEB outright and, in the case of Alphabet, you'd have three trillion dollars in cash left over."

Brendan was clear that this is not simply a story about cheap valuations. The underlying businesses are generating substantial cash, and management teams are backing their own companies with real money:

• Tencent is buying back stock every day
• Alibaba recently increased its daily share buyback from one million to four million ADRs
• Baidu and Kuaishou are paying dividends and repurchasing shares

Meanwhile, Alibaba has proactively told analysts that their 45% cloud revenue growth estimate is too low, and JD has signalled better-than-expected e-commerce numbers ahead of the August earnings season.

The AI story within these companies is also more advanced than many investors realise.

Direct cloud and AI-related revenue across the KWEB portfolio grew 81% year-over-year, with an estimated $50 billion in direct cloud and AI revenue across the portfolio on an annualised basis.¹¹ In China, the model differs from the US: large language models have been widely made available for free, and the primary way companies make money from AI is through cloud computing rather than enterprise software licensing.

"These companies don't really get much credit for what they've done in AI," Brendan believes. "Even though a lot of the companies in KWEB, through their large language models or through their cloud computing, are benefiting from AI adoption, they're not receiving that return [in their share price]."

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Global Investors Remain Underweight

Xiaolin shared data from an analysis of 359 actively managed global mutual funds representing approximately $1.5 trillion in assets, all of which continue to hold less China than their benchmark suggests they should.¹¹ The pessimism toward China is already baked into how portfolios are positioned, and that itself creates an interesting setup.

"When allocations are already low, it may take only a modest improvement in confidence, policy visibility, or earnings to encourage investors to revisit their exposure. Even a move from deeply underweight to a more neutral position could represent a very meaningful source of incremental demand."

The relationship between the US and China has also shifted in a more positive direction.

Following the October 2025 meeting between President Trump and President Xi at the APEC summit, both sides significantly reduced tariffs. Senior economic officials have maintained dialogue through Davos and other channels, and the US has permitted Nvidia to sell H200 chips to China. More open communication between the two sides reduces the risk of sudden policy surprises and allows investors to focus more on company fundamentals and valuations rather than geopolitics.

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Two Distinct Opportunities, One Ecosystem

Brendan and Xiaolin were clear that KSTR and KWEB are not doing the same thing. The two funds tend to move independently, partly because the onshore Chinese market is largely driven by domestic investors, while Hong Kong-listed stocks are more influenced by global capital flows.

Put simply, KSTR gives investors exposure to the companies building AI hardware in China, while KWEB gives exposure to the companies deploying it. Owning both and rebalancing between them as market conditions change may offer a more complete picture of China's technology opportunity than either does on its own.

Near-term catalysts for a recovery in KWEB include the August earnings season, where management guidance has already turned more positive; the Politburo meeting scheduled for late July; and any further improvement in China's property market and consumer confidence, which could begin to release the very high levels of household savings sitting on the sidelines.

"The consumer confidence remains as a source of potential upside," Xiaolin noted. "Expectations are already subdued, so even a gradual improvement in household sentiment could have a meaningful effect on spending, travel, services, and discretionary consumption."

For investors whose China allocation currently consists almost entirely of Hong Kong-listed financial and consumer internet companies, both KSTR and KWEB offer access to parts of China's technology story that remain significantly underrepresented in global portfolios.

This is a marketing communication. Please refer to the UCITS Prospectus, the KIID, and the PRIIP before making any final investment decision.

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For KSTR standard performance, risks, and top 10 holdings, please click here.

For KWEB standard performance, risks, and top 10 holdings, please click here.

This material contains assumptions, estimates, and opinions that are subject to change and may not prove accurate. Actual results and outcomes may differ materially from those discussed. Investors should carefully consider both potential opportunities and risks, as favourable outcomes are not guaranteed and negative outcomes may occur.

Low valuations do not necessarily indicate future appreciation, and securities may remain undervalued or decline further. Comparisons are illustrative only and do not imply future market valuations.

This should not be regarded as investment advice or a recommendation of specific securities. Holdings are subject to change. Securities mentioned may or may not be current holdings and do not make up the entire portfolio and, in the aggregate, may represent a small percentage of the fund.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month end please click above.

Citations:

1. Data from “AI Capex and the GDP Math”, Goldman Sachs Research, 25/May/2026.
2. South China Morning Post. “China’s trade surges in first half of 2026, maintaining growth amid global tensions,” South China Morning Post. 14/Jul/2026.
3. General Administration of Customs of the People's Republic of China, 14/Jul/2026.
4. Data from Bloomberg as of 30/Jun/2026.
5. Data from Bloomberg as of 14/Jul/2026.
6. Data from Bloomberg as of 30/Jun/2026.
7. Data from Bloomberg as of 30/Jun/2026.
8. Data and estimates from Bloomberg and KraneShares as of 08/May/2026; and Reuters. “Waymo Seeking About $16 Billion near $110 Billion Valuation, Bloomberg News Reports,” Reuters. 31/Jan/2026.
9. Data and estimates from KraneShares, Bloomberg, and company reports as of 30/Jun/2026. Companies may never reach the valuation implied by SOTP analysis.
10. Data and estimates from KraneShares, Bloomberg, and company reports as of 30/Jun/2026. Companies may never reach the valuation implied by SOTP analysis.
11. Data from KraneShares and Bloomberg as of 30/Jun/2026. Includes estimates. Results are as of a specific point in time and may not be indicative of future outcomes.
12. Data from Copley Fund Research as of 30/Jun/2026.

Term Definitions:

STAR Market: The Science and Technology Innovation Board on the Shanghai Stock Exchange, launched in 2019 as China's technology-focused exchange, similar in concept to the Nasdaq.

Sum of the Parts (SOTP) Analysis: A method of valuing a company based on the sum of its individual businesses, rather than its overall profit margin or revenue.