Key Takeaways
- • Matthews Asia portfolio manager Andrew Mattock argues that deliberate China-focused AI exposure is the "missing piece" for investors, as broad emerging market funds like the iShares MSCI Emerging Markets ETF (EEM) lack sufficient Chinese AI stock concentration.
- • The iShares MSCI China ETF (MCHI) itself does not emphasize AI stocks, creating a strategic gap that the Matthews China Fund (MCHFX)—which holds at least 80% of assets in Chinese equities—aims to fill; the fund is down 4% year-to-date with major positions in Tencent and Alibaba.
- • South Korea and Taiwan companies represent nearly half of broad emerging market ETF holdings, leaving Chinese exposure underrepresented despite China's position as the world's second-largest economy and a significant AI development hub.
- • Billionaire hedge fund manager David Tepper of Appaloosa Management signaled renewed interest in Chinese equities in September 2024, buying across the broader market, though KraneShares' Brendan Ahern recommends using options strategies on China-focused ETFs like KWEB (KraneShares CSI China Internet ETF) to hedge volatility risks.
Summary
Matthews Asia portfolio manager Andrew Mattock has identified China as a critical but overlooked component of artificial intelligence investment strategies. Speaking on CNBC's "ETF Edge," Mattock emphasized that investors seeking AI exposure through standard emerging market funds or plain vanilla MSCI products are missing substantial Chinese exposure. The core issue, according to Mattock, is structural: broad emerging market vehicles concentrate heavily on South Korean and Taiwanese companies—which comprise nearly half of the iShares MSCI Emerging Markets ETF (EEM)—while underweighting Chinese equities and their AI capabilities.
Even dedicated China-focused vehicles present limitations. The iShares MSCI China ETF (MCHI), while providing direct China exposure, lacks a deliberate focus on artificial intelligence stocks, creating what Mattock characterizes as a significant gap for investors seeking to capitalize on China's AI advancement. The Matthews China Fund (MCHFX), which Mattock manages, addresses this gap by allocating at least 80% of net assets to Chinese equities with greater emphasis on technology and AI-related holdings. The fund's largest positions include Tencent and Alibaba, both major players in Chinese technology and cloud infrastructure. Year-to-date performance through late September 2026 stands at negative 4%.
Recent market sentiment suggests growing institutional interest in Chinese equities. Billionaire hedge fund manager David Tepper, founder of Appaloosa Management, indicated in September 2024 that he had increased exposure to Chinese assets broadly, signaling renewed conviction in the market's long-term prospects. However, risk management remains paramount. KraneShares' chief investment officer Brendan Ahern recommends that investors implement protective strategies when gaining China exposure, specifically suggesting options-based hedging around China-focused ETFs such as KWEB (KraneShares CSI China Internet ETF). This approach allows investors to establish downside protection while maintaining upside participation, addressing the volatility concerns inherent in Chinese market exposure.
Even dedicated China-focused vehicles present limitations. The iShares MSCI China ETF (MCHI), while providing direct China exposure, lacks a deliberate focus on artificial intelligence stocks, creating what Mattock characterizes as a significant gap for investors seeking to capitalize on China's AI advancement. The Matthews China Fund (MCHFX), which Mattock manages, addresses this gap by allocating at least 80% of net assets to Chinese equities with greater emphasis on technology and AI-related holdings. The fund's largest positions include Tencent and Alibaba, both major players in Chinese technology and cloud infrastructure. Year-to-date performance through late September 2026 stands at negative 4%.
Recent market sentiment suggests growing institutional interest in Chinese equities. Billionaire hedge fund manager David Tepper, founder of Appaloosa Management, indicated in September 2024 that he had increased exposure to Chinese assets broadly, signaling renewed conviction in the market's long-term prospects. However, risk management remains paramount. KraneShares' chief investment officer Brendan Ahern recommends that investors implement protective strategies when gaining China exposure, specifically suggesting options-based hedging around China-focused ETFs such as KWEB (KraneShares CSI China Internet ETF). This approach allows investors to establish downside protection while maintaining upside participation, addressing the volatility concerns inherent in Chinese market exposure.
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