Smart Money | China Europe Fund: Focus on Policy Enhancement and Seize Three Opportunities in Investing in AI
Author | Yi Da Huang
Editor | Huai Zhou Zheng
Looking at the performance of A-shares since the beginning of this year, it can be said that it has been entangled between expectations and reality. The sharp rise in the A-share market in the first quarter was influenced by both the traditional spring rally and strong expectations. The sideways consolidation between April and May reflected the strengthened recognition of the weak reality by investors, and expectations therefore gradually weakened. From the end of May to the middle of September, the continuous downward adjustment during this period fell into a negative feedback loop of weak expectations and weak reality.
Chart: The trend of the Shanghai Composite Index since the beginning of this year; Data source: wind, 36Kr
After 924, with the policy shift, investor expectations improved again, and the A-share market rose rapidly from the end of September to the beginning of October. A considerable number of investors were able to unwind their positions due to this short-term sharp increase. As an important participant in the A-share market, although the 924 market was short, it had a great help to the fund performance, and more importantly, the economic expectations warmed up.
Recently, at the 2025 Annual Investment Strategy Conference of China Europe Fund, several fund managers shared their views on the capital market in 2025 with investors. Then, what are the core views of China Europe Fund on the macroeconomy next year? Which industry sectors' investment opportunities are more favored?
01 Fixed Income and Macro: The Downward Trend of Yield is Clear, Focus on Policy Intensification
Since this year, the trend of interest rate decline is obvious. On the one hand, China is currently in an interest rate cut cycle, and the short-term interest rate declines with the policy interest rate, which also opens up the downward space for the long-term interest rate. On the other hand, the continuous decline in the long-term interest rate indicates that the current capital market lacks assets with stable positive returns. Coupled with the weak recovery expectations, government bonds, as the risk-free rate in the major asset classes, are more favored by investors. Therefore, crowded trading is another important factor driving the continuous decline in interest rates.
At the end of September, with the significant shift in domestic macro policies, it had a significant impact on the expectations of various major asset classes. In terms of equity, the A-share market immediately experienced a short-term sharp increase, which is the well-known 924 market. In terms of fixed income, the interest rate of government bonds showed a significant upward trend from late September to early October, and it has to be said that the stock-bond seesaw effect during this period was quite obvious; most of the major commodity varieties also rose during the same period.
After this, the direction of the stock-bond seesaw reversed. While the A-share market fluctuated widely, the interest rate of government bonds once again entered a downward channel. The logic behind such changes in asset prices is that as the previous good expectations were priced in, investors' responses to the subsequent policy release of good expectations gradually became dulled, and they paid more attention to the implementation of the policies.
Even so, the policy expectations' guiding role for the fundamental expectations is still the core reference for investment decisions. Based on the current policy tone to judge the future economic expectations, China Europe Fund believes that:
The core of the current entire policy is to stabilize the asset price level. In recent years, the entire fundamental situation has been under pressure to a certain extent, including the total downward pressure brought by the real estate market and the reduction of the broad-spectrum interest rate prices.
Therefore, from a narrow perspective, the policy demand for the entire real estate market is to achieve a'stop in the decline and stabilization' of real estate prices, which is very clear.
From a broad perspective, the package of economic stimulus policies that have been introduced is intended to guide a certain degree of recovery in the broad-spectrum price level, thereby improving the overall income expectations and further guiding the fundamentals into a positive cycle.
In the future, breaking the downward pressure on prices requires an intensification of policies. If there is no significant policy expansion or promotion, the entire price level may still improve upward but with relatively weak elasticity.
It can be seen from the judgment of China Europe Fund that the situation of policy intensification needs to be focused on next year. In terms of rhythm, a major consensus in the current market is that it still takes time and further confirmation for the broad money supply, broad credit, and the fundamental improvement to materialize. Therefore, in the context of a positive fundamental expectation, with further interest rate cuts, the logic of the bond bull market will continue. From the perspective of financial products, bond funds will still have great potential in 2025.
For the bond market in 2025, China Europe Fund forecasts that:
On the one hand, the downward trend of yield is clear, including the further downward space for the interest rate of residents' existing mortgage loans. On the other hand, the overall volatility will increase compared to this year, while the slope will slow down. In terms of strategy, the first is to seize the duration value in the downward trend of yield and actively obtain increased returns through trading.
02 Artificial Intelligence: Insights into Three Major Investment Opportunities from Technological Transformation
In terms of industry strategy, artificial intelligence is one of the most popular investment themes in recent years. As the core development direction of future consumer technology, the policy support for artificial intelligence is already quite clear. AI is not only one of the important connotations of the new quality of productivity but also a key work direction of the government next year.
From the perspective of development trends, the gap between the capabilities and products of domestic large-scale models and those overseas is gradually "narrowing" this year, and the competition among large-scale model manufacturers also shows differentiated characteristics. Specifically at the technical evolution level, the current domestic large-scale model capabilities have gradually caught up to the level of GPT-4, and it is expected to reach the level of GPT-5 next year. At the same time, driven by domestic Internet companies, technology giants, and startups, the penetration rate of domestic search and text-to-video products has been rapidly improved.
From the perspective of secondary market investment, China Europe Fund believes that:
Artificial intelligence is an underlying technology, and its development will have a profound and long-term impact on all industries. The large-scale model is the most important and underlying technology in artificial intelligence, mainly completed by technology giants and their underlying startups. Because the training of large-scale models requires a huge investment of resources, many listed companies are unable to complete this task alone. Therefore, the investment opportunities in artificial intelligence mainly revolve around three aspects: AI infrastructure (computing power), software applications, and hardware-based AI applications.
Artificial intelligence itself has the characteristics of massive data, complex algorithms, and diverse scenarios, therefore it puts extremely high requirements on computing power. In order to obtain a ticket to the era of general artificial intelligence, the arms race among global technology giants has already begun. In order to ensure computing power, they are building AI data centers on a large scale and intensifying the training of large-scale models.
Regarding the sustainability of the growth of AI computing power, there are certain differences in market views. China Europe Fund believes that:
According to the latest overseas data, the sustainability of the growth of AI computing power is still fully supported. Cloud vendors in North America generally revised up the capital expenditure guidance for 2025 in the third quarter of this year, and the proportion of AI in it increased rapidly. It is expected that by 2026, the proportion of AI-related capital expenditure of the above-mentioned vendors will rise to about 65%. Therefore, whether it is terminal cloud vendors, GPU manufacturers, or GPU foundries, they are generally optimistic about the sustainability of AI computing power. From the perspective of industrial development logic, the continuous iteration of large-scale models and the new demand on the inference side after the explosion of application endpoints are important supports for the continuous growth of AI computing power demand.
Next, looking at the semiconductor industry, according to the latest market expectations released by the World Semiconductor Trade Statistics Organization (WSTS) in December this year, the global semiconductor market size will reach 627 billion US dollars in 2024, with a year-on-year growth of 19%. The updated forecast growth rate is 3 percentage points higher than that in the spring.
From the perspective of the growth of various sub-sectors, AI contributes the majority of the industry's growth; although the storage market maintained a high growth rate overall this year, the storage price has gradually entered a downward state since the second half of the year; consumer electronics may face differentiation; analog and ECU are both dragged down by the downstream and have pessimistic expectations.
Whether it is the low prosperity of some sub-sectors or ASML (Dutch ASML Company) recently lowering its guidance, it indicates that the semiconductor cycle faces certain macro pressures, and AI is the core driving force for the growth of the entire semiconductor industry. In the view of China Europe Fund, the two major investment directions of AI infrastructure are the overseas supply chain and domestic computing power chips.
Chinese companies are deeply involved in the global AI market mainly by entering the supply system of overseas GPU and cloud vendors, such as optical modules, PCB, board cards, liquid cooling and other products. Many of these companies are listed companies in the A-share market and occupy a very important position in the global supply chain system.
In terms of domestic computing power, due to the technological blockade by the United States, the development of domestic chips is in an urgent state. Many domestic enterprises, including technology giants, listed companies, and startups, have made certain progress in the research and development and tape-out of artificial intelligence chips.
In terms of artificial intelligence software applications, China Europe Fund believes that:
AI assistants have become the most important application scenario. With the continuous upgrade and functional expansion of large-scale models, AI assistant applications represented by ChatGPT have gradually evolved from the first stage of "chatbots" to the second stage of "reasoners", that is, with human-level reasoning ability and the ability to solve a variety of complex problems.
From the perspective of the development trend of AI applications, overseas, not only the traffic of ChatGPT continued to reach new highs in the second half of this year, but also the AI applications in various industries generally experienced an explosion period, driving listed companies to achieve excellent operating results. For example, many US stock companies in fields such as AI education, AI advertising, AI office, and AI security achieved better-than-expected growth in the third quarter of this year.
In China, the product traffic of mainstream large-scale model companies has also continued to rise this year, and some vertical AI applications have also entered the market one after another, especially AI search, AI text-to-video, AI office, AI finance and other products are gradually being promoted to the user side.
In terms of hardware, China Europe Fund is optimistic about the investment potential of three application carriers of AI edge-side hardware (AI mobile phones, intelligent wearable devices), autonomous driving, and humanoid robots.
Once a major breakthrough is made in autonomous driving technology, the global electrification rate will enter an inflection point of accelerated upward growth, and the investment opportunities in industries such as lithium batteries, complete vehicles, and automotive parts will also be activated. In terms of humanoid robots, the supply chain of the global humanoid robot leader has a high degree of overlap with the automotive supply chain. China's manufacturing industry is deeply involved in the research and development, design, and mass production of humanoid robots, and will fully enjoy the historic opportunity of the explosion of the humanoid robot industry.
In conclusion, artificial intelligence is the most exciting technological transformation of this era, and the new round of technological revolution led by it will definitely bring new opportunities to the capital market. As an important component of investors, the views of China Europe Fund on artificial intelligence are quite representative. Driven by policy support and technological breakthroughs, artificial intelligence in 2025 will definitely bring more surprises, and at the same time, public funds that are bullish on the field of artificial intelligence are also worth looking forward to next year.
*Disclaimer:
The content of this article only represents the author's views.
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