(Yicai) Sept. 12 -- BlackRock is keeping a strong focus on Chinese tech stocks due to their large valuation gap with global rivals, especially those in the US, as well as strong artificial intelligence-led growth and the country’s push for self-reliance in the chip industry, the chief investment officer for the Middle East and Asia at the BlackRock Investment Institute recently told Yicai in an exclusive interview.

Even though recent nonfarm payroll data has slowed significantly, the US economy is more likely to experience a moderate slowdown rather than a recession, Ben Powell said. Meanwhile, US wage growth remains relatively strong, which may prevent inflation from fully returning to the target level. Therefore, BlackRock expects the US Federal Reserve to cut interest rates two times this year, and not the five to six times widely expected by the market.

"The US has seen a rare decline in labor supply due to the impact of post-pandemic recovery, coupled with adjustments to the new government's immigration policy, such as the deportation of illegal immigrants, and population aging. This has made it more difficult to interpret nonfarm payroll data. Even if the data seems weak, this may reflect shrinking supply rather than collapsing demand. Therefore, market participants need to carefully evaluate the data and avoid overconfidence," Powell said.

Rate Cuts

"Current inflation levels are relatively high and tariffs may further push up inflation in the next few quarters, complicating the inflation situation," Powell said. For this reason, BlackRock's forecast for interest rate cuts is more conservative than that of other financial institutions. The New York-based firm believes the Fed will trim interest rates twice this year, once in September and another before the end of the year, lowering the interest rate to 4 percent.

By contrast, other financial institutions, such as Morgan Stanley, anticipate there to be six cuts in the current interest rate cycle, which will reduce the neutral interest rate to around 3.25 percent.

Overall, BlackRock is particularly optimistic about US large-cap tech stocks driven by AI in the next 12 months, Powell said. And it adheres to the view that the US dollar will weaken.

Stock Market Rally

China's stock market has made a strong comeback this year. Nevertheless, there are doubts in the market that the rally is "driven by liquidity and lacks fundamental support." However, BlackRock believes the market trend also has a fundamental logic. Global investors have rediscovered that AI is not exclusive to the US, and that China also has advantages in AI development.

For example, China has a large number of outstanding engineers, government policy support, and a capital market financing system. Previously, there was a significant valuation gap between Chinese and US tech stocks, and the recent valuation recovery has further boosted the confidence of domestic investors. At the same time, Chinese investors are facing a low-interest-rate environment and are more willing to shift to the stock market with higher income potential.

Surging Demand

Recently, a report from Goldman Sachs also showed that driven by the AI wave, China's demand for computing power has surged since 2025, and the capital expenditure growth rate of China's top four cloud service providers, namely Alibaba Cloud, Tencent Cloud, Huawei Cloud and ByteDance, is significantly higher than the global average.

Morgan Stanley believes that the surge in demand for computing power means the demand for AI chips, memory chips and high-speed interconnection technology will continue to rise. The New York-based company predicts that by 2027, China's domestic graphics processing units will only be able to meet 39 percent of AI demand. China's domestic AI chip manufacturers are pumping more investment into R&D to reduce reliance on single suppliers such as US tech giant Nvidia. In addition, advanced packaging technologies such as CoWoS and CPO have become important directions for China to break through computing power bottlenecks.

Editor: Kim Taylor