UBS stated in its report that, facing escalating geopolitical tensions, China continues to fully support self-reliance and independence in the technology sector. Chinese technology companies covering semiconductors, software, and automation will be the main beneficiaries of this initiative, and the report anticipates that years of policy support will drive a valuation reassessment in the technology sector:
1. The Chinese government reaffirms its commitment to technological innovation and self-reliance, promoting the localization of semiconductors, software, and automation through fiscal investment, the "Big Fund" (already at $45 billion), and adoption by state-owned enterprises. The "Digital China" plan outlines a digital economy blueprint to 2035.
2. Domestic AI large-scale model innovation reduces development costs, benefiting AI equipment, data centers, and hardware semiconductors.
3. The sector remains in a deep value range compared to historical levels, presenting an opportunity for valuation reassessment.
4. In terms of stock selection, UBS removed Zhongji Xuchuang from its top picks list and added Huichuan Technology, a leading domestic industrial automation company that continues to gain market share from Japanese manufacturers. Benefiting from the digital upgrade of manufacturing and policy encouragement, its forward P/E/Growth Ratio (PEG) is approximately 1, making its valuation attractive. The removal of Zhongji Xuchuang was mainly due to its currently high valuation and increased uncertainty caused by geopolitical tensions. (The above views are from a UBS report dated August 5th.)
