China's economic self-resilience strategy boosts tech sector

Chinese equities have had a strong year so far. Investor sentiment is buoyed by continuous supportive policies aimed at invigorating China's capital markets, including lower interest rates and measures to attract long-term capital. Given recent jitteriness in the US stock market, especially for tech companies, one wonders whether China may experience a strong correction soon.We argue that several things have changed making a big correction unlikely.What has changed?Push for Tech Sovereignty: The US China trade war has created a strategic imperative for technological self-reliance. Demand for domestic substitution in critical technologies has surged. Meanwhile, China's AI, and robotics sectors achieved notable breakthroughs, such as DeepSeek, drawing back investor attention.A temporary truce: The October trade talks between Trump and Xi yielded a temporary truce giving China a valuable window to retain its supply chain advantages.Resilient earnings but low valuation in HK tech sector: China’s challenging macroeconomic environment has weighed on corporate earnings broadly, but the tech sector is an outliner. Compared to 2021, when the regulation changes on real estate and internet platforms first took place, the EPS of HSTECH faced the biggest shock back then but it is now 84% higher than before. However, the market has not fully appreciated the difference between earnings and valuation.What else to watch?Next Five-Year Plan: High quality development still reigns supreme, reinforcing the existing focus on productivity and self-reliance in strategic sectors such as AI, biotech, and advanced manufacturing.