Foreign investors turn to China hard tech via derivatives and ETFs, eyeing semiconductors and robots

As global AI trades become increasingly crowded, more overseas investors are beginning to seek a "second front" in the AI era within Chinese assets.

International investment banks such as Barclays and UBS have recently observed sustained rising demand from clients for call options and swap contracts linked to Chinese equity indices. Meanwhile, since the start of this year, overseas issuers have launched ETF products focusing on hard-tech sub-sectors such as Chinese semiconductors and humanoid robots.

Multiple foreign institutions believe that overseas capital's perception of Chinese assets has gradually shifted from traditional consumption and internet sectors to hardcore technology fields like semiconductors and advanced manufacturing. Looking ahead, as the global competitiveness and earnings stability of Chinese tech companies continue to improve, Chinese tech assets are expected to see sustained increased allocation by overseas funds.

By Reporter Wang Peng

Significant Rise in Derivatives Demand

In September this year, a trader in the United States purchased a large number of call options on the KraneShares CSI China Internet Fund, betting on its recovery to price levels seen earlier in 2026.

This is not an isolated case. According to observations from trading desks at international investment banks including Barclays and UBS, recent demand from clients for call options and swap contracts linked to Chinese equity indices has continued to rise. At the same time, more strategists are advising investors to use derivatives tools to position themselves in the Chinese stock market, with particular attention focused on small- and mid-cap stocks.

"Recently, we have found growing interest among investors in bullish strategies for the Chinese equity market. This partly reflects that, as valuations and return expectations for some popular investment themes in global markets come under scrutiny, investors are seeking to diversify their sources of equity returns," said Kahn Hari Singh, Head of Asia Pacific Equity Liquidity Derivatives Sales at Barclays.

Lars Nekter, Head of Asia Pacific Equity Derivatives Research at Bank of America, stated that current sentiment is tense, which presents an ideal trading opportunity. He recommended a call spread strategy on the CSI 1000 Index, arguing that it is better to choose options rather than flooding into spot equities or futures, especially when pricing is favorable. "Catalysts will eventually emerge, and tactically positioning ahead of a rally often costs less than reacting passively after the fact."

Jason Lui, Head of Asia Pacific Equities and Derivatives Strategy at BNP Paribas, noted that China's onshore market, with its unique ecosystem, offers exposure distinctly different from the AI theme, thus providing natural diversification benefits compared to global AI trades.

UBS argued in a recent report that the CSI 500 Index serves as an alternative AI bet for investors seeking to diversify their exposure.

"I am more convinced that the Chinese market is entering a phase characterized by 'slow growth rather than rapid surges, structural rallies rather than broad-based gains.' This precisely explains why investors are increasingly willing to use call option spreads. They are rebuilding long exposure to Chinese assets, but expressing a disciplined, risk-budgeted optimism rather than the euphoria commonly seen at previous market tops," said Xu Zhongxiang, Founder and Chief Investment Officer of RAYLIAN Group.

Increasing Allocation via ETFs

Beyond positioning through derivatives, overseas issuers have actively launched China tech-related ETFs since the start of this year, with product themes extending from broad China tech to hard-tech sub-sectors such as semiconductors and humanoid robots.

• VanEck (US) launched SMHC in June, the first US-listed ETF dedicated solely to China's domestic semiconductor industry. It tracks the MarketVector China Semiconductor 25 Index, targeting 25 Chinese companies across value chain segments from design and manufacturing to advanced packaging. Data shows that as of September 14, the ETF's assets under management approached $20 million.

• Defiance ETFs (US), a US issuer of thematic and leveraged ETFs, launched CROB in August, the first US-market ETF focused exclusively on China's humanoid robot industrial ecosystem. It tracks the Solactive China Humanoid Robot Index, with its top ten constituents covering leading domestic core component manufacturers such as Leaderdrive, Inovance Technology, and Hengli Hydraulic.

Additionally, several overseas ETFs have included Chinese tech leaders in their portfolios with relatively high weights:

• Tema Memory ETF (DISK) incorporated ChangXin Memory Technologies into its portfolio via total return swaps (SWAP) on the first day of its listing on the STAR Market, with an initial weight of 10.56%. Subsequent holding data shows that DISK's allocation to ChangXin Memory Technologies has remained consistently high; as of September 14, ChangXin accounted for 7.55% of the portfolio, ranking as the fourth-largest holding behind SanDisk, SK Hynix, and Kioxia.

• Roundhill Memory ETF (DRAM), the world's largest memory-focused ETF, also quickly established exposure shortly after ChangXin Memory Technologies' listing. As of September 14, ChangXin represented 4.64% of the portfolio, making it the ninth-largest holding.

According to Xu Zhongxiang, the issuance of a series of China hardware tech stock ETFs by overseas firms reflects not only a recovery in overseas investors' risk appetite for the Chinese stock market but, more importantly, a re-recognition of "China Tech" itself.

"The launch of ETFs around specific China tech sub-sectors by overseas asset managers, or the inclusion of related leaders in active portfolios, is a manifestation of the market gradually recognizing and reassessing the value of Chinese tech assets," said Luo Jing, Investment Director at Value Partners Group.

Luo Jing believes this partly reflects that the global competitiveness of China's tech industry is gaining more attention from overseas investors, particularly in the tech hardware sector, where some Chinese companies have secured important positions in global supply chains and formed advantages in manufacturing efficiency, supply chain coordination, cost control, and product iteration.

Long-Term Revaluation Opportunities for China's Hard Tech

Increased allocation to Chinese assets by foreign capital is not an overnight process. Luo Jing acknowledged that overseas investors will continue to monitor factors such as the realization of corporate earnings, industrial prosperity, corporate governance, and the external environment. However, in the medium to long term, assuming more Chinese tech companies demonstrate stable profitability and global competitiveness, research coverage and allocation demand for Chinese tech assets by overseas investors are expected to gradually increase.

Xavier Baraton, Global Chief Investment Officer at HSBC Asset Management, stated that the attractiveness of the Chinese market is supported by multiple factors: the combination of artificial intelligence and technological localization, precise policy support, and relatively reasonable valuation levels. Meanwhile, domestic indices exhibit lower sensitivity to global markets while showing stronger momentum in earnings growth. Additionally, China's diversified energy supply provides a certain buffer against external shocks.

Xu Zhongxiang noted that previously, when overseas investors discussed Chinese tech, they primarily thought of internet platforms, e-commerce, and consumer internet—focusing on consumption rather than technology. Today, however, more overseas investors are paying attention to semiconductors, artificial intelligence, robotics, advanced manufacturing, new energy supply chains, and automation.

He believes that in the next phase, artificial intelligence will continue to be a key driver of interest in Chinese hard tech assets.