The math on China: Why 50% of AI exposure comes from South Korea and Taiwan

To boost exposure to artificial intelligence investors need a more deliberate approach according to Matthews Asia portfolio manager Andrew Mattock. He argued that broad emerging market strategies will not be very effective at capturing the sector's total potential. The physical reality of the market requires precision. When investors buy an emerging market fund or a plain vanilla MSCI product they are not getting a large portion of the upside.

Mattock identified the specific variable in the equation. He noted that companies from South Korea and Taiwan comprise almost half of the iShares MSCI Emerging Markets ETF portfolio. Conversely the iShares MSCI China ETF lacks a specific focus on AI stocks. This creates a structural gap for pure-play investors. He is the architect of the Matthews China Fund which mandates that at least 80 percent of its net assets go into Chinese common and preferred stocks.

The fund is off 4 percent so far this year as of Friday's close. Its largest holdings include Tencent and Alibaba. This illustrates the volatility inherent in the sector. Billionaire hedge fund manager David Tepper found the Chinese economy attractive again. He told CNBC in September 2024 that he bought more of "everything" related to China. This signals a potential shift in macro positioning.