China Strategy Tracker: Post Fed hike, AI back in focus

Post Fed hike, AI back in focus. The Fed delivered its rate hike with hawkish guidance, leaving the door open for additional hikes. The NASDAQ has since hit fresh highs even with this hawkish policy bias intact, accompanied by lower oil prices. Meanwhile, China's August activity data points to persistent weakness in domestic demand: retail sales rose only 0.4% y-o-y, and FAI extended its decline (8M26 -7.2% y-o-y). Against these divergent signals post the Fed hike, AI stands out as the key investment theme in China due to tangible and considerable earnings growth. Within AI, domestic compute may deliver tactical outperformance over overseas compute, especially before the US mid-term election in November, due to strong policy support, cost-effective domestic models, and uncertainties tied to US CSPs' capex. Data highlights: (1) y-t-d new mutual fund issuance increased 28% y-o-y;