UBS analysts recommend increasing allocations to Chinese technology stocks following a recent sector decline. The bank cites strong earnings prospects, attractive valuations, and AI advancements as key drivers for expected returns in 2026. Chinese tech giants currently spend significantly less on capital expenditure compared to US counterparts, creating room for expansion.

The Hong Kong-listed Chinese tech sector has wiped out approximately 20% from its October highs amid fears of stretched AI spending in the US. However, Chinese AI startups like Zhipu, MiniMax, and Deepseek have recently launched cutting-edge models. UBS expects more vibrant AI progress in China during 2026, including powerful foundational models.

UBS increased its portfolio weighting by 3 percentage points in certain stocks while adding 1 point each to several tech companies. The bank also expressed optimism about China's gaming sector, suggesting AI disruption fears are exaggerated. Top-tier gaming companies are positioned to benefit from AI trends rather than face competitive threats.