Investors pivot to Chinese stocks as AI trades get crowded

Investors are increasingly turning to bullish derivatives tied to Chinese equities as an alternative to crowded artificial intelligence trades in Japan and South Korea, driven by China's domestic technology push. This shift is supported by capital-market reforms and an improving earnings outlook for hardware companies. Global banks like UBS and Barclays report strong demand for call options and swaps on China's CSI indexes, particularly in mid- and small-cap shares. UBS noted the largest weekly derivatives flow in Asia as of August 30 came from bullish positions on Chinese indexes, with investors positioning for gradual gains. Despite lingering economic concerns and the CSI 1000 remaining 16% below its May high, lower options prices are adding appeal. U.S. investors are also joining, with bullish calls purchased on the KraneShares CSI China Internet ETF, viewing China's tech ecosystem as a way to retain AI exposure without crowding elsewhere.