Tencent Earnings a Litmus Test for China's AI Sector | The China Show | 8/12/2026

Market Sentiment and AI Jitters [0:00]

• Asian stocks are inching higher as traders await core U.S. inflation data.
• Tencent is set to kick off China's internet earnings season, with investors scrutinizing the balance between AI spending and returns.

  Investors looking for signs a WeChat operator can balance returns with big spending on AI.

The China Tech Earnings Landscape [4:15]

• Roughly 90% of MSCI China index components are expected to report earnings over the next three weeks.
• Internet sector valuations are currently depressed, with Tencent trading at approximately 12 times forward PE.

  A lot of bad news has been priced in.

Deleveraging in China's Tech Sector [6:40]

• Onshore deleveraging, particularly in the Star 50 index, appears to be nearing an end.
• Strategic importance of companies like CXMT and Unitree may drive future performance on the Starboard.

  According to our Bloomberg Intelligence folks, they're saying that the deleveraging that they saw onshore is nearing an end.

Repositioning Strategies [8:30]

• July's market volatility provided opportunities for active stock pickers to acquire tech assets at cheaper valuations.
• Diversification into non-tech sectors like materials and industrials is helping portfolios navigate shorter-term sell-offs.

  I think that's why the last month has actually been quite good opportunity-wise for active stock pickers in the market.

India as a Contrarian Play [11:10]

• India has shown resilience, holding up better than other parts of Asia during recent market sell-offs.
• Consumer sectors in India have outperformed, providing a non-AI alternative for investors.

  India is one that actually held up reasonably well.

Strait of Hormuz Tensions [14:40]

• President Trump claimed the U.S. maintains total control over the Strait of Hormuz.
• Uncertainty regarding crude oil flow continues to keep Brent prices elevated around $90.

  We will control Hormuz is one of the lines that's come through this so far.

The Manus-Meta Divorce [20:15]

• Beijing ordered the unwinding of the deal between Manus and Meta back in April.
• The split serves as a warning for other Chinese AI firms seeking U.S. capital or technology transfers.

  It's a warning for other Chinese AI firms looking to sell their stake to a US company.

Taiwan vs. Korea Rotation [23:30]

• Foreign funds are rotating out of Korea and into Taiwan, favoring Taiwan's steadier earnings outlook.
• Korea's market has been hampered by volatility in leveraged ETFs.

  There is a persuasive case that there is some rotation happening from Korea to Taiwan.

AI Infrastructure Demand [26:10]

• Supermicro and CoreWeave reported strong AI-driven sales growth, signaling robust infrastructure demand.
• Bond traders have reduced credit risk exposure to NVIDIA following its financing strategy updates.

  That's going into some lighter positioning in Korea.

China Automotive Export Surge [32:30]

• Domestic car sales in China are slumping, but exports surged 88% in July.
• BYD is increasingly relying on overseas markets to offset weak domestic demand.

  You're really seeing BYD relying on their exports for growth.

South Korea's Strategic Fund [36:20]

• Korea plans to deploy $700 million into a new strategic sovereign wealth fund for high-tech industries.
• The fund aims to provide long-term patient capital rather than simple indirect investments.

  We plan to invest primarily with long-term patient capital and directly make equity investments.

Airline Industry Headwinds [40:40]

• Elevated jet fuel prices are forcing airlines to raise fares, though demand remains surprisingly resilient.
• Carriers are rationalizing capacity to manage costs as the year-end approaches.

  Most carriers are quite glad to see actually demand still being holding off pretty well.

Inbound Tourism Recovery [43:20]

• Inbound tourism to China has recovered to pre-pandemic levels, bolstered by visa-free policies for 50 countries.
• While tourism growth is significant, it still accounts for a small percentage of China's overall GDP.

  18 million people, one eight, arrived from visa-free countries to the point we just made.

Tencent's AI Investment Drag [46:10]

• Tencent's earnings growth is expected to slow in the second quarter due to rising AI investment costs.
• The company is playing catch-up with Alibaba in the AI space.

  That is obviously going to be a margin drag this year, but that is well known and factored into consensus.

The Role of AI in China Tech [49:10]

• AI is currently depressing margins across the Chinese tech sector due to loss-leading service pricing.
• Tencent's long-term potential lies in integrating AI into its massive WeChat user base.

  I very much doubt it's going to drive incremental upside to consensus earnings estimates.

Conclusion on Market Outlook [52:30]

• Markets are showing moderate gains despite lingering uncertainty over U.S. inflation and geopolitical risks.
• Investors remain focused on the earnings season to provide clarity on the sustainability of the AI trade.

  We're still trying to ascertain really to give you an elucidation of what's happening there.