ETF Edge - China & the shifting investment leadership in Asia 9/21/26

Episode Date: September 21, 2026

The Chinese market could be poised for a comeback… but is it too late to hold its place as the Asian front-runner? Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The EETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Dominic Chu.

President Trump and Chinese leader Xi Jinping are getting together this week for a state-oriented meeting and looking to revive some economic relations as well. Here is my conversation with Brendan Ahern, the chief investment officer at Crane Shares, alongside Andrew Mattock, portfolio manager at Matthews. Gentlemen, thank you very much for being with us here on ETF Edge. I wanted to kind of put that in context in the introduction, because the reason why there's a lot of attention being paid to the Chinese versus U.S. investment thesis is because Trump's

Trump and she will meet later on this week. And maybe I'll start from a big picture point of view, Brendan, with you. Just how important is this particular meeting towards maybe, I don't want to say resetting, but maybe setting the stage for the next leg of our relationship with China. Well, that's exactly how we see it, Dom, that this is a re-rating of U.S.-China relations. President Trump as a business person, I think, is very attuned to U.S. corporate interests. U.S. Congress just reported that U.S. companies generate half a trillion of revenue in China annually. And so I think this is an opportunity for kind of this re-rating stabilization of the relationship, really driven by maybe partnerships from U.S. and Chinese corporations.

How much have you sensed, by the way, over the course of not just the first Trump administration, but into this one as well, how much of the U.S. investor base has had some kind of, you. of influence or effect based upon the predominantly trading relationship that we have with China and the rhetoric that has gone along with it since 2016 at this point. Yeah, yeah, exactly. I mean, I think that rhetoric, that geopolitical rhetoric has really weighed on U.S. investor sediment. At the same time, that's not necessarily true outside of the U.S. where there's particularly the commodity world is so geared to China that they kind of have to do business. there and their institutions are very geared, understand that. Here in the US, we've had this incredible bull market.

So I think it's just been a little out of sight, out of mind, because of a little bit of this geopolitics. And that's where we're more constructive that this stabilization would allow US investors to come back into the space. All right, so Andrew, interesting point being made here with regard to our relationship there. From an investor standpoint, have you seen over the course

of say that 10 year span? I know it's a big kind of time window to look at, But at Matthews, you have been investing in Asian equities more broadly and even specifically in China for even longer than that. How much has the investing landscape in terms of sentiment shifted over the course of the past 10 years, given this kind of U.S. and China predominantly trade relationship and now extending to things like AI as well? Yeah, it's been up and down. You know, the low point was probably just two years ago where we had that sort of big spat, really. And, you know, we've come a long way since then. You know, the dialogue, Scott was sent yesterday,

had some positive things to say. You know, anything we hear, you know, like that from a Chinese equity point of view, does alleviate a lot of concerns that people had, even two years ago, let alone, you know, 10 years ago. On the same time, you know, China's going through its own domestic issues that it's getting over the top of, particularly the property market. So that's also in the background, but it's great to see from investors' point of view that some of this external noise is starting to dissipate.

Andrew, from that portfolio manager's point of view, just where have you started to see a little bit more of the pickup and activity with regard to the types of companies and the types of markets that investors are kind of shifting more of their attention towards? If they are investing in Asian markets or want to invest more internationally, globally, ex-US, how exactly are they viewing that and what exactly are they looking at with regard to the types of investments? Is it strictly tech and Asia-related or is it go beyond that? Yeah, so let's start with China and then we'll broaden that out.

You know, what we're seeing is quite narrow, very AI-focused, a lot more sort of Shanghai, Shenzhen, listed stocks, very technology heavy. What we're seeing, though, from an earnings perspective in China, is earnings broadening out. So, you know, materials was mentioned, financials, healthcare. So we're starting to see sort of signs of life in other places from an earnings perspective. And investors are paying attention. The one soggy point still is the, is really the consumer, both discretionary and staples. Now, broadening that out to the rest of Asia, you know, the indices really tell it all. You know, Taiwan and Korea, when you look up the makeup of emerging market, indices at the moment dominate, and that's really been driven by, you know, the AI boom in the US and that

filtering through to Asian supply chains. But there are opportunities outside of that starting to appear. I mentioned a few in China. India's sort of gone off the radar screen as well. So outside of AI, things are starting to broaden out, but I wouldn't say that it's, you know, we're still heavily focused in on that AI story. So Brendan, it's a great point because Andrew brought up an interesting discussion about the difference between mainland China investing versus investing offshore in Hong Kong. Now, I mean, it's nuanced, but it's important, right? It is still the Asian market and Hong Kong is technically part of China.

But the way that those companies that list in those different markets and the types of companies that are there are also very different in the way that those markets are treated. So how exactly are investors treating that relationship? If I was to invest in a broad-based China ETF, most of that these days is going to be in Hong Kong listed shares of some of the biggest tech and financial companies that we know out there internationally. But it's different when you start going into the Shanghai, Shenzhen markets, which are much more locally focused and with names that we don't necessarily view as brand names if there are such a thing for us in the U.S. v-a-vis China. Yeah, 100%. I think this is where all ETFs are really driven by an underlying index. And I think that's where this is very key that in the case of China, that definition of China is 80% Hong Kong, 5% U.S. ADRs. If you look at the big companies in that Hong Kong market, you have banks, financials, but you also have a lot of discretionary names. And to Andrew's point, you have a housing situation that's weighed on the consumer.

So those earnings per share growth has been very poor. Conversely, 15%, which is basically non-existent for global professional investors to even bother to look at the Shanghai Shenzhen. You have things like the Starboard where the Science and Technology Board is where all of the Chinese semiconductor stocks like CXMT have listed a company that called Enflame recently listed Unitary, the big robotics, the largest robotics maker globally. And those companies are benefiting from the AI hyper-scalers spending, right? That CAPEX is ending up the balance sheets of these starboard, starboard listed companies similar to Korea, Taiwan, and Japan. So this is a little bit of a

nuanced situation where Hong Kong hasn't seen that earnings per share growth. investors are gravitating to those four markets, but again, a little bit out of sight, out of mind because you've got to really dig in and find those Shanghai listed science and technology board names that we hold in our K-Star ETF. You know, it's interesting, Andrew, because that's what your job is, right? Your job is to sit there and dig through all of these things to try to find those names that are not necessarily, again, I'm only using it because we hear in the U.S. and even internationally, ex-China and ex-Hong Kong,

we tend to think of the brand names that go into Chinese investing. When you look at the big ADRs that trade here, or the big ETFs that hold holdings that are based in Hong Kong, we're talking about names like Alibaba, Tencent, Baidu, the ones that have become more synonymous with the Chinese tech trade over the years. But it's very different these days, specifically, I would say just in the last year, maybe even six to nine months, because many of the names that we are talking about that are not brand name yet,

but are getting a lot more attention are Chinese AI names that are not those ones that I mentioned before. So how exactly do you go about doing that kind of bottoms up stock picking for that earnings growth, for that revenue picture, and what exactly makes a good investment in China if it's not going to be in their equivalent of what we would call hyperscalers? Yeah, so some very good points there. But just to pick up the mainland market, Shanghai and Shenzhen, which aren't included to any large degree in most of these global indices. I mean, this is the second biggest stock market in the world, and it's not included. So it's up to us, and hence the Matthews China Fund.

We have the Matthews China Innovation Fund as well. To go through these companies, it's a very deep, it's very liquid, it's a very interesting place. Now, we're talking about AI and we're talking about IT. But it's very interesting in lots of other places as well. And to your point, just not included in most of these global indices. So that's where, you know, it's up to us to step into that role and fill in the pieces. How exactly then do you figure out what those pieces are, if I could follow up with that, Andrew? How exactly do you then pick the types of companies that go into a broader portfolio for

your clients. So Matthews Asia, you know, we go back a long time, 25 years plus. So the level and the depth of experience we have, and it's not just in China and it's not, you know, we have the China Fund, China Innovation Fund, we also have the Korea Fund, you know, Emerging Market Fund. So lots of experience across the board in lots of these markets, but particularly in China, Because China's a big part of all these, even these broader funds. Getting on the ground, at guys in Hong Kong. It's all really part of the process that we go through to try and to pick out the nuggets, if you like,

from what is a very, very, very deep market. Brendan, from an ETF investor perspective, there are a lot of folks who now will look at these investments. I'm using K-Web as an example because it just seems to be one of the more well-known ETFs out there, K-W-E-B for the China Internet ETH. The names that are in there for the most part, the ones that are the most heavily weighted are the ones I mentioned before, the ones that we all kind of have grown up around for the past 10, 15 years.

But a lot more of the story, just like here these days, is being driven around some of these smaller or even private companies that are making bigger strides and showing some of that higher growth versus, say, a meta-platform. or an Apple or an alphabet or anything of that like. How then do investors go about expressing that view through ETFs as opposed to fundamental research on their own for trying to invest in these types of companies? And I say that because many of the types of companies

that we're reading about are not really generally all that accessible for investors here in the United States as opposed to those ETF managers with boots on the ground, so to speak, who can access those markets in a better way? I mean, I think that's really, the point of an ETF is to do something for you that you can't or really don't want to do on your own. And when you invest in K-Web,

we're going out and converting your US dollars into Hong Kong dollars and buying these underlying stocks on the Hong Kong Stock Exchange. You know, yes, you're getting exposure to the big companies like an Alibaba and a 10 cent that have ADRs here. At the same time, the liquidity in Hong Kong is much, much deeper than here in the US. And also, we are giving you exposure to some

the AI large language models, companies like ZAI and Mini Max that went public earlier this year, that you're getting a little bit of Lenovo, which is kind of benefiting from the picks and shovels trade that's really benefited to Korea and Taiwan and Japan as well. So you are getting some exposure. I just think you've had this really strong 17-year U.S. bull market. Yes, throw on some of the geopolitics, some of the consumption issues in China. And it's been a really tough market for several years. And we really believe that if you have a better than expected outcome with Trump Xi, just, you know, this is the first meeting in 11 years, the first state visit by a Chinese leader since President Obama met with Xi Jinping back in Seattle in 2015. As an official

state visit, obviously, Xi Jinping was here three years ago in San Francisco at AIPAC. But anyway, I just see this reestablishing. That's good for all investors, not just China investors, you know, so many U.S. companies make a lot of money in China or they get their inputs from China. So this is a benefit for the U.S. economy, U.S. stock market as well. Andrew, from a U.S. investors' perspective, how much more, and I asked this knowing that you manage China and Asia funds, so you may have an ax to grind here, but how much do investors need to pay attention to this AI investing story, not just here in the U.S., but also in places like China, South Korea, Japan, Taiwan, other places as well in Asia, because this AI story is not

necessarily a great reset for the tech market, but it is certainly one that has opened up to more competition that's closely, closely linked versus some of the other industries we've invested in in the U.S. because the U.S. just had a comparative advantage right from the get-go. Yeah, so the first thing that you mentioned there, you know, in terms of Asia, was the supply chain. So as we know with this technology rollout, a lot of that supply chain comes out of Asia, comes out of China. People just need to be aware, as you mentioned, where all the bits and pieces come from. In addition to that, you bring up another great point is that China's also competing at the very forefront now, whether it's pharma or AI models themselves. And we've seen

that on the news. So that's really the weakness in the I think the weight of these indices are structured to a degree. We've mentioned Shanghai, Shenzhen being 17 trillion dollar stock market, really not in any indices. Investors need to be aware when they buy an emerging market fund or when they buy a plain vanilla MSCI product, MSCI China, they're not getting a lot of it. Now, what I would say that you are getting is you are getting, you know, the Korean and the Taiwanese Korea and Taiwan, like I mentioned, make up now half of MSCI emerging markets. So you are getting that. I think the big piece that you are missing, though, is the Chinese piece.

All right. One last point to you, Brendan, about this process. If you are looking to make that investment in a place X-US that is going to capitalize on the AI trade, it seems as though the default story these days is to go towards China. And even more specifically these days, mainland China, Shenzhen, Shanghai, and those exchanges and indices oriented towards there in particular. from an investor standpoint, how comfortable should you feel as a medium to longer term investor about investing in places like in mainland China through mutual and ETF type products? Because the China story has shifted a lot. It's been a roller coaster.

I remember the word uninvestable coming to the headlines at one point just in the past five years. And then not so long after that, a notable hedge fund manager saying I wanted to buy everything I could in China. Right. Yeah, I mean, that's that, I mean, some of these wrinkles are from that volatility. And I think that's the key for an investor that when you're carving out a country like China, it's going to be volatile, right? That that standard deviation is, you know, not just two or three times higher than the S&P 500 is potentially five to 600 percent higher.

So you have to almost volatility adjust it. And also I think kind of actively rebalancing. I like the idea of utilizing options around some of those ETFs. Like with KWeb, KSTOR, they, they, they, they, they, they, they, they, I think, kind of They have deep options and you can write calls so you can monetize some of that liquidity. Why do some of these hedge funds gravitate to these ETFs? Because they're able to write a call and principally protect themselves, give themselves some downside.

So I think one, volatility adjusting it, it's a small piece of a broader portfolio and then maybe taking advantage of some of that option liquidity to protect yourself a little bit to the downside or turning it into an income generating vehicle. So we may even see more income-oriented China-Asia-based, funds that are going to do call overwrite strategies on those types of things. All right. And one last point to you, Andrew, from a portfolio manager's perspective, how durable is this story medium to longer term for investors who want to invest in China specifically with regard to tech slash AI? Is it something where you just have to kind of identify and understand that there are going to be

shorter to medium term volatile moments but allocate because it is a longer term secular play? Yeah, absolutely. I think you know, you get the whole supply chain plus you get the innovation angle to it with the models themselves. So, yeah, it's here to stay. The Chinese government's putting, you know, very key focus, very key policy focus on, you know, the overall technological improvement going on in China. So even when you look at, you know, what's backstopping it from a government policy point of view, I have to, you have to believe that it's here to stay. And although, my. markets don't reflect the influence of China. I think investors, you know, should should certainly, should certainly be aware of it. All right. My thanks very much to Andrew Mattock over at Matthews, as well as to Brendan Ahern, the chief investment officer over at crane shares. We've asked Andrew to stick around for the ETF Edge podcast. You can catch that in all of our other content over at etfedge.c.com. Thanks for watching and we'll see you soon. of ETFs with the ETF Edge newsletter.

Your weekly update on the hottest trends, expert analysis, actionable ideas, and exclusive insight from top industry experts. Sign up now at CNBC.com forward slash ETF Edge newsletter. Good? Oh, awesome. Thank you so much. Brendan, thank you. Yeah, thank you, Dominic.

Let's figure out the golf. If you're just in Westport, then let's... Yeah, yeah, yeah. I'm at Burning Tree in Greenwich. Oh, nice, nice. I mean, we can do a home-in-home, I'm happy to host, and whatever it is. I'm going to Patterson.

Oh, that's great. I've never played before, so I would love to do that. They just re-did it. Yeah. It's really cool. They did a great. So is, is Paul Richards still there? He is still a member there?

So Paul and I, Paul used to be one of my bosses back when I was at UBS. So he was running the FX sales desk covering hedge funds when I was there. So I was an FX sales trader at Warburg back in like 99-0. And so that was how I, and I know Paul said he keeps on telling me, he was, Dom, you got to come to Patterson, come to Patterson. He read it. Yeah, yeah, yeah, yeah. We'll get a group together, yeah, for sure. Yeah, yeah, yeah, yeah, yeah.

No, thank you. Yeah, yeah, really nice to. Yeah, yeah, catch up and for sure. Let's do it again soon, and let's start using you a little bit more as well for this stuff. Thank you very much, Brennan. You got it. Andrew, thank you very much for sticking around. Yeah, no worries.

Hopefully that was clear enough. By the way, I've been a not to, I've been a Matthews client, so to speak, for like a decade plus at this point now. Specifically in the, the, the, what's it, the China, the small, the China small companies fund. I guess what is that called the Innovators fund or whatever it is now? It's not called the Innovators. Yeah, yeah, yeah. Yeah. So I've been in that fund for quite some time.

But I kept saying, it was like, you know, I know these Matthews guys and like, I've been, I've been a investor in their mutual funds for quite some time. So let's get these guys on if we can. Yeah, it's an interesting subject. It's hard to explain to people how little, you know, Chinese shares are in these indices. You know, it's very strange. Well, it's not just, it's more, and maybe we'll get, so the point of this, so this podcast, just so you know, is audio only.

So you don't have to worry about the camera. We're just using your camera to track your audio, but it's just, it's basically an audio only format. We're going to try to target around maybe call it seven to eight minutes in that range. But the good part about these, as you know, is that there's no hard out. Unlike broadcast television, I don't have a commercial break to run into. I don't have another show that's going to start and whatever it is. So if the conversation's going and engaging, we can let it run a little bit

so that we don't cut an idea or thought off. But we'll try to target, we'll call it kind of like that seven, eight minutes span. And I'd like to talk a little bit about the China investing thesis from your standpoint. The types of companies that are now passing your screens, right, that are, that are that are coming up as candidates for potential investment. What are some of the common factors that link some of those types of companies that are coming more to your kind of limelight? And then what exactly it means to be an investor in China for the medium to longer term?

And is it something where you can feel comfortable doing that as an American in this kind of era, right, where there's so much contention and trade hostility and everything else, specifically because of Trump and Xi coming up this week? There's a lot of, there are a lot of moving parts. with regard to investing in China these days, not the least of which is now a politically charged environment vis-a-vis trade. Yeah, sure. Okay.

So, yeah, that's a doctoral dissertation, but we'll try to do whatever we can in seven to nine minutes kind of thing. Okay, fine, yep. I'll try and simplify it. No, no, no worries. All right. Okay, sounds good. I'll count us in and we'll get going.

You ready, Andrew? Yep. Yep. Okay. Three, two. one. Welcome to ETF Edge the podcast. If you're looking to learn the latest insights on all things exchange traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors.

I'm your host, Dominic Chu. President Trump and Chinese leader Xi Jinping are getting together this week for a state-oriented meeting and looking to revive some economic relations as well. Here is my conversation with Brendan Ahern, the chief investment officer at Crane Shares, alongside Andrew Mattock, portfolio manager at Matthews. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Andrew Mattock, the portfolio manager at Matthews, continues with us now. I'd like to kind of jump from the conversation that we had on our digital show for ETF Edge

into an area in particular that I want to focus on because it's getting so much more attention these days. And that is just how much the China trade today is not just about tech, which it's been about for the past 20 years, but AI specifically because it's become so hyper competitive, U.S. companies and now Chinese companies that are maybe not at the exact same level, but pretty darn close with regard to the race for AI supremacy. Yeah, so I think the big difference in China is you get the whole supply chain. So when people think about it and they think about U.S. companies, yeah, you get the models, you get the big tech platform companies.

Now, everything has to produce that. And there's a lot of interesting supply chains that go into building that data center. That's what you can pull out of China and at the edges, you know, obviously Korea and Taiwan, like we've seen with memory, et cetera. But that's what makes China, I think, an interesting market from an AI investment perspective. Again, we've touched on it how little of that $17 trillion stock market is actually in the indices. But the companies exist and they're real and they go into building all the data centers. So, you know, math is, you know, obviously through our China offerings,

we just try and go through every part of that supply tank all the way up to the AI model and work out what part, certainly in the next couple of years, is going to be the most profitable point to be in. You know, that's obviously thrown up a few surprises in the last 18 months. The tech companies in the US have had cash flows question in terms of monetization. It's sort of been the opposite in Asia, and in particular China. You know, cash flow is pouring in and order fulfillment can't be filled quick enough. So even we go into the subject matter of slowing down AI development, sort of almost thank God because we can't keep up with borders.

So that's what you get in China and the rest of Asia that you don't get a lot of when you look at US equities. That sounds a lot, Andrew, like what the AI investing landscape was, given the fact that many of these companies are still very private, even the biggest frontier labs that we talk about with regard to the AI supremacy story. are still privately held here in the U.S. But the construct and the kind of, I guess, sentiment around investing in AI that you just referred to in China seems to be like what we had here in America just a couple years ago into last year. Is it safe or not safe to make the kind of, I guess, link

that the investing market right now in China for these AI companies is akin to what it was like when things were booming, with regard to sentiment and investor interest here over the last 12 months, but that has now since cooled here in the U.S. over the course of the last three to five months. I mean, the supply chains are supply chains. So everything goes together, and the cooling of investment and sentiment,

ripples through the whole supply chain as well. So we're not immune to it from any perspective. It's just that when you look at the types of companies and the earnings backing them within that supply chain, I think the outcomes are different. In some ways can be a little bit more scary and extreme because a little bit more cyclicalities involved in that supply chain. But with that comes to rewards as well in terms of stock market performance. So that's something that you have to balance. That's something you mentioned the US and the cooling of the energy.

the AI trade, if you want to put it like that, that's also rippled through to a degree Asia and China. So by no means that we're immune to it. But I would just say that the type of company that you're investing in Asia slash China is, it's different. It's not just the model. It's not just even the data centers themselves. They're putting all the money into the data centers. Well, the components of all the data centers are coming out of Asia, coming out of China. The data center is owned by Google, but most of what goes into that data center, apart from, you know, the very, very high-end chips comes somewhere, comes out of somewhere in Asia.

So by no stretch we're immune to the same sentiment issues that you have in AI and the US. All right, given all of that kind of foundation work or background with regard to the investing landscape, I wonder now if you could kind of take us through. because it is your job to kind of go through the bottoms up analysis, if you will, and kind of find where the best investments are on a relative basis against a benchmark or anything else. What types of companies then are starting to make their way into your portfolio? And what types of companies are kind of waiting in the wings because they're kind of getting ready to check all the boxes, if you will,

for making an investment there? Is it going to be in the same old kind of large-cap, Chinese tech companies who have the balance sheets that are looking to fund these types of operations, or are there more in some names here like in the U.S. that have developed with regard to the infrastructure trade, the component and supply chain trade, the beneficiary trade, if you will, from the industries that could benefit, the second, third, and fourth derivatives of centralized frontier AI. What types of companies are now starting to pop up in your portfolio and on your screens for possible investment.

Yeah, so the traditional sort of hyperscaler supply chain, yep, okay, got it. In addition to that, when you look at what's happening in China is this drive towards self-sufficiency because of the competition between the US and China, it's driving the Chinese to deliver on technologies they didn't have. So within that AI supply chain, if you looked at the listing of the CXMT, the memory maker, that's sort of come to market. You've got variants of that within the memory supply chain where China's evolving. In optical, it's the same thing.

So where China is maybe different today than it was before is this drive towards self-sufficiency. So in terms of where we're headed, you know, there's another demand story there, and that's the rollout of Chinese infrastructure, everything that goes around that when it comes to AI within China itself. And where they don't have it, or they can't get that piece or part, they're developing it themselves. And if we can identify world-class companies that are emerging in that self-sufficiency trade, that's something that particularly interests us at the moment.

How much are those companies fitting into what we would consider here to be the small and medium-sized capitalization part of the spectrum versus the larger to mega-cap side of things? It's actually a range. You know, let's take memory. You know, they're trying to develop memory companies at large scale. In addition to that, where you've got optics involved. They're trying to develop companies there. you would call them sort of mid-range and then further down the supply chain you've actually got so it's actually all pieces right down to the material side so where they don't have the types of

materials that they need advanced materials to make semiconductors they're also developing those and they can also be you know medium and small companies as well as large companies depending on the size of that sub-segment so it is a variety actually yeah but it is it is It's an interesting thing that you don't hear much about in the US because everyone sort of just takes sufficiency and supply chain security for granted. In China, where you're technologically behind, but you're trying to catch up and you can't get those parts, that's where it's become a little bit different when it comes to Chinese equities. And those supply chains have an added wrinkle as well because there are now supply chain constraints on things that the US will export to China. there are some kind of controls on that front as well with regard to critical type components, which leads me to my last question for the time that we have here today, Andrew,

and that is just how comfortable investors here in the U.S., for sure, but maybe even more broadly around the world, how comfortable should they be investing in China as a longer-term kind of investment thesis, only because there are so many dynamics at play with regard to you know, conversations at the highest level between our leaders, ideologically or otherwise, about just how much in conflict we would be the U.S. and China as the two kind of AI superpowers that are literally trying to duke it out right now for who's going to win this war, if you want to call it that. Yeah, and look, the way I look at that is, like, if someone could have run over someone by now,

they probably would have done it. Yeah, number one and two, economy in the world, pretty hard to run over anyone at this point. I think the consensus that you're seeing being reached is it's better to work in some sort of like reasonable, with some sort of reasonable framework than create friction. Because both sides have got a lot to gain from the relationship as well. So I think as time goes on, it's very hard to conceive a world that, and from an investor's point of view where China's not a big part of that world. It's, it's, it's maybe 10 years ago or 15 years ago, you could see that, that world,

but that comes increasingly hard to see how Chinese equities as an investment are not going to be around, despite some of these frictions, you know, that, that are ongoing. So, yeah, that's, that's the way I sort of look at it now. it's sort of, I guess, too big. I mean, it's just too big. It's something I can get rid of now. So, yeah. All right.

It's an interesting story because it's going to be something front and center for a lot of investors this week as President Trump gets to meet with President Xi Jinping. Andrew Mattock over at Matthews. Thank you very much. We'll see you again soon, sir. No worries. Thanks for your time. All right.

That does it for ETF Edge, the podcast. Thanks very much for listening. Join us again next week or just head over to etfedge.cnbc.com. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Andrew Mattock, the portfolio manager at Matthews continues with us now. I'd like to kind of jump from the conversation that we had on our digital show for ETF Edge into an area in particular that I want to focus on because it's getting so much more attention

these days. And that is just how much the China trade today is not just about tech, which it's been about for the past 20 years, but AI specifically because it's become so hyper-competitive, U.S. companies and now Chinese companies that are maybe not at the exact same level, but pretty darn close with regard to the race for AI supremacy. Yeah, so I think the big difference in China is you get the whole supply chain. So when people think about it, and I think, about US companies. Yeah, you get the models, you get the big tech platform companies. Now, everything has to produce that. And there's a lot of interesting supply chains that go into building that data center. That's what you can pull out of China and at the edges, you know,

obviously Korea and Taiwan, like we've seen with memory, et cetera. But that's what makes China, I think, an interesting market from an AI investment perspective. Again, we're talking. We're touched on it, how little of that $17 trillion stock market is actually in the indices. But the companies exist and they're real and they go into building all the data centers. So, you know, Matthews, you know, obviously through our China offerings, we just try and go through every part of that supply tank all the way up to the AI model and work out what part, certainly in the next couple of years, is going to be the most profitable point to be in.

You know, that's obviously thrown up a few surprises in the last 18 months. The tech companies in the US have had cash flows question in terms of monetization. It's sort of been the opposite in Asia, and in particular China. You know, cash flow is pouring in and order fulfillment can't be filled quick enough. So even we go into the subject matter of slowing down AI development, sort of almost thank God because we can't keep up with orders. So that's what you get in China and the rest of Asia. You don't get a lot of when you look at U.S. equities.

That sounds a lot, Andrew, like what the AI investing landscape was, given the fact that many of these companies are still very private, even the biggest frontier labs that we talk about with regard to the AI supremacy story are still privately held here in the U.S. But the construct and the kind of, I guess, sentiment around investing in AI that you just refer to in China, China seems to be like what we had here in America just a couple years ago into last year.

Is it safe or not safe to make the kind of, I guess, link that the investing market right now in China for these AI companies is akin to what it was like when things were booming with regard to sentiment and investor interest here over the last 12 months, but that has now since cooled here in the U.S. over the course of the last three to five months? I mean, the supply chains are supply chain. So everything goes together and the cooling of investment and the ripples through the whole supply chain as well. So we're not immune to it from any perspective.

It's just that when you look at the types of companies and the earnings backing them within that supply chain, I think the outcomes are different. In some ways can be a little bit more scary and extreme because a little bit more cyclicality is involved in that supply chain. But with that comes to rewards as well in terms of stock market performance. So that's something that you have to balance. That's something you mentioned the US and the cooling of the AI trade,

if you want to put it like that. That's also rippled through to a degree Asia and China. So by no means that we're immune to it. But I would just say that the type of company that you're investing in Asia slash China is, it's different. It's not just the model. It's not just even the data centers themselves. They're putting all the money into the data centers.

Well, the components of all the data centers are coming out of Asia, coming out of China. The data centers owned by Google. But most of what goes into that data center, apart from, you know, the very, very high-end chips comes somewhere, comes out of somewhere in Asia. So by no stretch we're immune to the same sentiment issues that you have in AI and the US. All right, given all of that kind of foundation work or background with regard to the investing landscape, I wonder now if you could kind of take us through, because it is your job to kind of go through the bottoms up analysis, if you will,

and kind of find where the best investments are on a relative basis against a benchmark or anything else. What types of companies then are starting to make their way into your portfolio? And what types of companies are kind of waiting in the wings because they're kind of getting ready to check all the boxes, if you will, for making an investment there? Is it going to be in the same old kind of large-cap Chinese tech companies who have the balance sheets that are looking to fund these types of operations? or are there more in some names here, like in the U.S. that have developed with regard to the infrastructure trade, the component and supply chain trade, the beneficiary trade, if you will, from the industries that could benefit,

the second, third, and fourth derivatives of centralized frontier AI. What types of companies are now starting to pop up in your portfolio and on your screens for possible investment? Yeah, so the traditional sort of hyperscaler supply chain, yep, okay, got it. In addition to that, when you look at what's happening in China, is this drive towards self-sufficiency because of the competition between the US and China. It's driving the Chinese to deliver on technologies they didn't have. So within that AI supply chain, if you looked at the listing of the CXMT, the memory maker, that's sort of come to market.

You've got variance of that within the memory supply chain where China's evolving. In optical, it's the same thing. So where China's maybe different today than it was before is this drive towards self-sufficiency. So in terms of where we're headed, there's another demand story there, and that's the rollout of Chinese infrastructure. everything that goes around that when it comes to AI within China itself. And where they don't have it, or they can't get that piece or part, they're developing it themselves. And if we can identify world-class companies that are emerging in that self-sufficiency trade, that's something that particularly interests us at the moment.

How much are those companies fitting into what we would consider here to be the small and medium-sized capitalization part of the spectrum? versus the larger to mega cap side of things? It's actually a range. You know, let's take memory. You know, they're trying to develop memory companies at large scale. In addition to that, where you've got optics involved. They're trying to develop companies there. You would call them sort of mid-range.

And then further down the supply chain, you've actually got. So it's actually all pieces right down to the material side. So where they don't have the types of materials that they need advanced materials to make semiconductors, they're also developing those. And they can also be medium and small companies as well as large companies, depending on the size of that sub-segment. So it is a variety, actually. Yeah, but it's an interesting thing that you don't hear much about in the US

because everyone sort of just takes sufficiency and supply chain security for graph. answered. In China where you're technologically behind, but you're trying to catch up and you can't get those parts, that's where it's become a little bit different when it comes to Chinese equities. And those supply chains have an added wrinkle as well because there are now supply chain constraints on things that the U.S. will export to China. There are some kind of controls on that front as well with regard to critical type components. Which leads me to my last question for the time that we have here today, Andrew, and that is just how comfortable investors here in the U.S., for sure, but maybe even more broadly, around the world, how comfortable should they be investing in China as a longer-term

kind of investment thesis, only because there are so many dynamics at play with regard to, you know, conversations at the highest level between our leaders, ideologically or otherwise, about just how much in conflict we would be the US and China as the two kind of AI superpowers that are literally trying to duke it out right now for who's going to win this war, if you want to call it that. Yeah. The way I look at that is like if someone could have run over someone by now, they probably would have done it.

Yeah, number one and two economy in the world, pretty hard to run over anyone at this point. I think the consensus that you're seeing being reached is it's better to work. in some sort of like reasonable, with some sort of reasonable framework then create friction because both sides have got a lot to gain from the relationship as well. So I think as time goes on,

it's very hard to conceive a world and from an investor's point of view where China's not a big part of that world. It's maybe 10 years ago or 15 years ago you could foresee that world, but that becomes increasingly hard to see how Chinese equities as an investment are not going to be around despite some of these frictions, you know, that are ongoing. So, yeah, that's the way I sort of look at it now. It's sort of, I guess, too big. I mean, it's just too big.

It's something I get rid of now. So, yeah. All right. It's an interesting story because it's going to be something front and center for a lot of investors this week as President Trump gets to meet with President Xi Jinping. Andrew Mattock over at Matthews. Thank you very much. We'll see you again soon, sir. No worries.

Thanks for your time. All right. That does it for ETF Edge, the podcast. Thanks very much for listening. Join us again next week or just head over to etfedge.cnbc.com. the last few decades, technology has transformed our world in amazing ways. Through it all, Invesco QQQQEF has connected investors to the forefront of innovation. Access the future today with InvescoQQQ. Let's rethink possibility. There are risks when investing in ETFs,

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