By: Jing Cong (JC) Xue, a portfolio manager at Foord Asset Management

Against a backdrop of slowing global growth and ongoing geopolitical uncertainty, investors continue to overlook one of the most compelling opportunities in today’s market: China.

This is according to Jing Cong (JC) Xue, a portfolio manager at Foord Asset Management, who made a strong case for China’s innovation-led growth and the market’s persistent mispricing of that potential during Foord’s latest Mind of the Manager webinar. “In a low-growth world, the key to outperformance is finding areas of misunderstanding – where the market doesn’t want to go and doesn’t assign value – that’s where the opportunity lies.”

Despite rapid progress in high-tech sectors, Xue believes China remains deeply misunderstood and underappreciated by global investors. “China is no longer a copycat. It is innovating and creating world-class products with global roll-out potential,” he said.

Undervalued innovation in action

Xue pointed to China’s leadership in artificial intelligence (AI), citing Deepseek, a language model that rivals ChatGPT but at a fraction of the cost. Other AI models like Kling, which generates videos from text, and Manus, which builds AI agents for tasks like trip booking or website creation, show the breadth of local development. “There are thousands of AI algorithms being developed in China, with hundreds launched each month. By 2026, the ecosystem will have grown by another 50%,” said Xue.

Major tech players like Tencent and Alibaba also rank among the global top 10 for AI models, integrating these capabilities across their platforms. “These developments are not being priced in, especially when compared to the exuberant valuations of some western peers,” he added.

In semiconductors, China continues to make strides despite US sanctions. Xue noted that China’s leading chip manufacturer, SMIC, has significantly closed the technology gap with global leader TSMC. “A few years ago, SMIC was about a decade behind. Now, it’s only around five years behind and already producing advanced chips using older manufacturing equipment,” he explained. “These chips are used in smartphones and AI applications, and production is expected to reach even more advanced levels this year.”

This progress has been driven by necessity, as China’s access to Western chipmaking tools has been restricted – forcing the country to develop its own alternatives. “It’s united the industry around becoming self-sufficient,” said Xue.

He also pointed to China’s progress in autonomous vehicles. “Driverless taxis from Baidu are already on the roads in five Chinese cities – no safety driver required – and international pilots are under way,” said Xue. “There are plans to deploy 100 vehicles in Dubai by the end of the year.”. Yet, said Xue, “Baidu trades at less than 10 times earnings, while Tesla, which hasn’t deployed robotaxis yet, trades at a valuation that already prices in billions from this technology.”

In battery technology, Chinese companies are leading the way. CATL’s latest electric vehicle (EV) battery can add 500 kilometres of driving range after just five minutes of charging – essentially matching the speed of filling up at a petrol station,” said Xue. “That’s five times faster than Tesla’s current performance.” He also pointed to the development of sodium-ion batteries, a lower-cost alternative to traditional lithium batteries that promises better safety and durability. “It’s likely to be a global leader in EV batteries as the world electrifies,” said Xue.

Robotics is another fast-moving sector. Since 2022, two-thirds of global humanoid robot launches have come from China, driven by strong policy support, supply chains and local talent. “The pace and quality of development is exceptional,” Xue said.

Cultural strengths the market doesn’t price in

Beyond innovation, Xue emphasised China’s execution speed, resilience and long-term planning – attributes he believes are overlooked. “China built the world’s largest high-speed rail network in just a decade, and we see the same urgency in other sectors, like electric vehicle infrastructure and real estate,” he said.

On resilience, he highlighted Huawei’s recovery after being cut off from US technology. “Within four years, Huawei developed its own operating system and smartphone chips, and even launched a smart SUV with market-leading software – all without relying on Western tech.”

China’s long-term thinking is also evident in its education reforms, which began in the 1990s. “China now produces over four times more science and engineering graduates than the US each year.. At PhD level, it’s almost double,” said Xue. “That investment in talent is paying off now, and will continue to drive growth.”

Valuation gap too large to ignore

While acknowledging that China has challenges, including corporate governance and geopolitical risks, Xue maintains there is value that is being overlooked. “Look at the PE ratios of two leading retailers – China’s JD.com and Costco in the US. Despite slower growth, Costco trades at more than seven times JD’s valuation multiple. At what point does the valuation gap no longer make sense?”

Xue concluded by pointing to historical patterns of superpower dominance. “Throughout history, global leadership has followed technological advancement. China led in the 1500s. The Netherlands followed with shipbuilding, then the UK with the industrial revolution, and more recently the US with computing and nuclear tech.

“The US market is currently priced for exceptionalism to continue, even as risk to that leadership grows. China, inversely, is not priced for much, even as it grows in tech advancement and has all the ingredients for success around speed, resilience and long-term thinking. Low expectations typically raise probability of upside surprise, which is another reason why we like our positions in China.”