J P M O R G A N Global Markets Strategy 22 February 2026 This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. Asia Equity Strategy From a 'rotation' to an 'allocation' mindset in China When we upgraded China to OW in our Asia allocation late last November (2026 O ...

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: The discussion centers on the AI industry, particularly in China and the US, highlighting diverging trends in AI agent adoption and monetization strategies [1][2]. Core Insights - **AI Agent Adoption**: The year 2026 is projected as a pivotal year for the scaled adoption of AI agents, with a shift from chat-based interactions to actionable functionalities. In the US, there is a focus on enterprise adoption, while China is investing heavily in consumer-facing AI products [1]. - **Consumer Engagement**: Major Chinese internet companies launched significant promotional campaigns during the Spring Festival, with Tencent, Alibaba, Baidu, and ByteDance distributing substantial red packets to drive traffic to their AI offerings. For instance, Tencent's Yuanbao distributed Rmb1 billion, Alibaba's Qwen Rmb3 billion, and Baidu's Ernie Rmb500 million [1][6]. - **User Growth**: The campaigns resulted in over 130 million users trying AI services, with notable increases in daily active users (DAU) and monthly active users (MAU) for these platforms [6]. Company-Specific Developments - **Model Launches**: A wave of new AI models was released around the Chinese New Year, with advancements in coding and multimodal capabilities. Notable models include Zhipu's GLM-5.0, Moonshot's Kimi 2.5, and ByteDance's Doubao 2.0, showcasing improved performance and efficiency [3][23]. - **Market Positioning**: Companies like MiniMax are well-positioned to benefit from AI trends, with a focus on full-stack AI capabilities. Baidu and Alibaba are favored for their comprehensive AI ecosystems [4]. Monetization Trends - **Global Enterprise AI Monetization**: There is a surge in AI monetization globally, with companies like Anthropic raising revenue forecasts significantly due to advancements in their AI models. China's AI models are gaining market share in the global enterprise API market, leveraging cost-performance advantages [2]. Competitive Landscape - **AI Disruption Sentiment**: The ongoing narrative of AI disruption is fostering positive sentiment for model providers while making investors cautious about vertical platforms. The competitive landscape is evolving, with intensifying competition and regulatory risks being key concerns for companies like Baidu, Alibaba, Tencent, and Kuaishou [4][24][26][27][29]. Risks and Challenges - **Key Risks**: The report identifies several risks for the internet sector in China, including competition, technology trends, monetization uncertainties, and regulatory changes. Specific risks for individual companies include execution challenges, rising costs, and management issues [24][25][26][27][28][29]. Conclusion - The AI industry in China is experiencing rapid growth and transformation, driven by consumer engagement and technological advancements. Companies are strategically positioning themselves to capitalize on these trends, although they must navigate a complex landscape of competition and regulatory challenges.

Group 1 - The Global X AI & Technology ETF (AIQ) has achieved a 29.3% return over the past year, significantly outperforming the S&P 500 and QQQ, which returned approximately 13% [1] - AIQ is designed to provide diversified exposure across the AI value chain, holding 86 stocks with top holdings capped at 3-4% each, thus avoiding concentration in a few mega-cap names [1] - The fund's focus is on long-term growth driven by AI adoption across various sectors, including software, semiconductors, cloud infrastructure, and digital services, without using leverage or options [1] Group 2 - Over 60% of AIQ's assets are allocated to information technology and communication services, making it vulnerable to sector rotations and shifts in AI sentiment [1] - The fund has a 0.68% expense ratio, which is higher than that of broad index funds, necessitating sustained outperformance to justify the costs [1] - AIQ includes international players like SK Hynix, Samsung, and Taiwan Semiconductor, providing a global semiconductor footprint that a purely US-focused tech ETF would miss [1]

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Core Insights - Google and Sea Ltd have formed a strategic partnership to develop AI tools for e-commerce and gaming, specifically focusing on creating an AI agentic shopping prototype for Sea's Shopee platform [1] - This collaboration is part of a broader trend among global tech firms to monetize AI capabilities beyond basic functions, aiming to enhance various tasks including shopping and workflow management [1] - Shopee holds a dominant position in Southeast Asia's e-commerce market with a 52% market share in 2024, indicating significant competitive strength [1] E-commerce Developments - The partnership will explore the development of AI tools specifically for Shopee, enhancing the shopping experience through advanced AI capabilities [1] - Competitor Alibaba has also introduced a new AI model aimed at the e-commerce sector, highlighting the competitive landscape in Southeast Asia [1] Gaming Sector Innovations - Google and Sea's gaming unit, Garena, will leverage AI solutions to improve productivity in game development, indicating a focus on innovation within the gaming industry [1] - This collaboration follows a previous partnership between Shopee and YouTube, emphasizing the ongoing integration of technology and e-commerce [1]

Core Insights - The Lunar New Year holiday in China is driving significant travel and spending, with a notable increase in demand for immersive cultural experiences and entertainment options [2][3][5]. Travel and Tourism - Bookings for theme park hotels have nearly doubled year-over-year, and demand for trips featuring traditional performances and artisanal crafts has risen by approximately 40% [3]. - China is anticipating a record 110 million trips in and out of Beijing and 9.5 billion trips nationwide during the broader travel season, indicating extensive travel among its 1.4 billion population [5]. - The H World Group reports increased demand for both major transport hubs and leisure-focused cities, such as Xishuangbanna, known for its natural beauty and cultural heritage [6]. Entertainment and Leisure - iQiyi has opened its first theme park in Yangzhou, emphasizing the importance of offline entertainment as a growth driver for the company [9][10]. - Bilibili's annual expo sold out quickly, showcasing the popularity of interactive experiences based on animated shows and games [11]. - Universal Studios Beijing plans to incorporate themes from popular local media into visitor activities, aiming to attract more guests during the holiday season [11]. Consumer Spending Trends - Despite a general slowdown in consumer spending, with retail sales growing only 0.9% in December, luxury brands like Louis Vuitton continue to expand their presence and create shareable experiences [13][14]. - Shopping malls are featuring luxury brands that align their offerings with the upcoming Chinese zodiac symbol, indicating a focus on emotional and experiential spending [14].

Core Insights - Billionaire David Tepper's Appaloosa Management has made significant adjustments to its investment portfolio, focusing on semiconductor recovery while taking profits from Chinese tech and major tech stocks [1] Group 1: Investment Strategy - Appaloosa has aggressively increased its position in Micron Technology, Inc. (NASDAQ:MU), with a 250% increase in shares, adding 1,000,000 shares during the quarter, bringing the total to 1.5 million shares valued at over $428 million [2] - Tepper is shifting focus towards hardware components that support AI, rather than investing in chip designers [2] Group 2: Portfolio Adjustments - Despite reducing its stake, Alibaba remains the largest holding in Appaloosa's portfolio, now representing 10.88%, down from 15.61% in the previous quarter [3] - The fund has also reduced its positions in other major tech companies, including Amazon (NASDAQ:AMZN) by 12.8% (approximately 320,000 shares) and Nvidia (NASDAQ:NVDA) by 10.5% (liquidating 200,000 shares) [3]

Core Insights - Alibaba is set to release its third quarter earnings soon, with expectations for continued profit improvement and core e-commerce growth [1][2] - The company is undergoing a significant AI transformation project valued at $380 billion, which is expected to enhance profitability through cloud and AI solutions [5][7] Financial Performance Expectations - Analysts are looking for profit improvement from Q1 to Q4, alongside a resurgence in core e-commerce growth, which has been lacking [2][4] - Cloud revenue is projected to grow at 38%, indicating strong performance in this segment [7] Market Dynamics - The Chinese e-commerce market is shifting towards quality over volume, with consumers becoming more strategic in their purchasing decisions [8][9] - Government policies aimed at reducing excessive competition may help Alibaba stabilize its e-commerce profitability [10] Investment Sentiment - Current market conditions show a decline in stock prices, but analysts suggest that this presents a buying opportunity, particularly in the KWEB ETF [11][12] - There has been significant buying activity from mainland Chinese investors in the Hong Kong market, totaling $11 billion this week [13] AI and Robotics Trends - The AI sector is experiencing rapid growth, with triple-digit increases in AI-related cloud billings expected [16] - China is positioned as a leader in the robotics market, commanding 90% of global humanoid robot sales projected for early 2026, providing a first-mover advantage [17]

Core Insights - Chinese tech giants, including Alibaba, ByteDance, and Kuaishou, have launched new AI models that demonstrate significant advancements in robotics and video generation, positioning them competitively against U.S. counterparts [2][4][12] Group 1: Alibaba's RynnBrain - Alibaba's DAMO Academy introduced RynnBrain, an AI model aimed at enhancing robots' ability to understand and interact with their environment, showcasing capabilities such as counting and picking up objects [4][6] - RynnBrain features built-in time and space awareness, allowing robots to track task progress and remember past events, making them more reliable in complex environments [6][7] - This innovation places Alibaba in direct competition with Nvidia and Google, who are also developing advanced AI models for robotics [6] Group 2: ByteDance's Seedance 2.0 - ByteDance's Seedance 2.0 is a video generation AI model that can create realistic videos from text prompts, including the ability to incorporate other videos and images [7][8] - Users have noted significant improvements in AI video generation technology over the past two years, with Seedance 2.0 being recognized for its controllability, speed, and production efficiency [10] - Despite its advancements, Seedance 2.0 faced challenges, including the suspension of a feature that generated voices based on uploaded images due to consent concerns [11] Group 3: Kuaishou's Kling 3.0 - Kuaishou launched Kling 3.0, a video generation model that boasts upgrades in consistency, photorealistic output, and extended video duration, with native audio generation capabilities [12] - The success of Kuaishou's Kling models has contributed to a more than 50% increase in its share price over the past year [13] Group 4: Other AI Model Releases - Zhipu AI released GLM-5, an open-source large-language model that reportedly approaches Anthropic's Claude Opus 4.5 in coding benchmarks [13][14] - MiniMax also launched its updated M2.5 open-source model, enhancing AI agent tools designed for task automation, leading to a surge in its shares [14]

Core Viewpoint - The article discusses the competitive landscape of the AI industry, particularly focusing on the advancements in China and the potential implications for the US market, emphasizing that while US companies like Nvidia and OpenAI assert there is no AI bubble, the dynamics in China could challenge this perspective [2]. Group 1: AI Developments in China - China's AI industry is gearing up for significant developments, with reports of new models emerging that could rival US technologies, such as Alibaba's Qwen-3.5 and Zhipu's GLM-5 [4]. - DeepSeek's AI models were developed at a fraction of the cost compared to US leaders, indicating a potential competitive advantage for Chinese firms [3]. - The pace of AI model releases in China may accelerate, suggesting a shift in the competitive landscape [4]. Group 2: Chip Technology and Infrastructure - Nvidia's Blackwell chips are considered state-of-the-art, with rumors suggesting that some may have been made available to Chinese companies, potentially impacting the competitive balance [5]. - China may have access to Nvidia's H200 chip, but the future of this access is uncertain due to the ongoing US-China trade tensions [5]. - China's electricity capacity is double that of the US, which could provide a significant advantage for AI data centers, especially as energy infrastructure becomes a critical factor in AI development [6].