Chinese stocks trading overseas may emerge as a shelter for global investors, as confusion over the Federal Reserve’s monetary path drives diversification away from US equities and bonds amid a stumbling artificial intelligence trade. The Nasdaq Golden Dragon China Index of the biggest Chinese companies listed in the US has bucked a broader sell-off since the Fed’s July rate-decision meeting, rising 1.7 per cent. The Nasdaq-100 slumped 2.1 per cent and longer-dated Treasuries also fell during the span, as investors questioned the Fed’s credibility after its decision to keep the benchmark interest rate unchanged despite inflation staying above target for five years. With new Fed chairman Kevin Warsh abandoning policy guidance and the dot-plot map, the lack of clarity over the monetary outlook may fuel the biggest volatility in US stocks already battered by doubts over the returns from massive AI build-outs by cloud service providers. Chinese stocks trading in the US aren’t a crowded trade or high-leveraged bets and they are now viewed more as defensive in an uncertain market Wang Chen, partner, Xufunds Investment Management Chinese stocks trading in the US aren’t a crowded trade or high-leveraged bets and they are now viewed more as defensive in an uncertain market Alibaba Group Holding and other US-listed Chinese companies have rebounded after lagging for most of the year, as negatives from stagnant profit growth to price wars in the e-commerce industry have largely been priced in. “Chinese stocks trading in the US aren’t a crowded trade or high-leveraged bets and they are now viewed more as defensive in an uncertain market,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “For US stocks, the rate issue is like a knife hanging overhead that will cause disruption until a hike really materialises.” Migrations into companies with a defensive profile and clearer earnings outlook also took place in US stocks, with funds flowing to the pharmaceutical and consumer sectors from AI-linked names. The Golden Dragon China Index, whose biggest constituents include Alibaba, JD.com and NetEase, is on course to outperform key US benchmarks this month. It has risen 7.4 per cent in July, beating a 10 per cent decline in the Nasdaq 100 and a 2.4 per cent retreat in the S&P 500. A similar pattern is also seen in Hong Kong, where mainland Chinese tech stocks have rallied after a deleveraging of margin trading in South Korea fuelled rotation to safer bets. The Hang Seng Tech Index tracking the likes of Alibaba and Tencent Holdings has risen about 7 per cent this month, withstanding the unravelling of AI fervour. Alibaba owns the South China Morning Post. The gap between Warsh’s commitment to fighting inflation and the Fed’s inaction could pose a challenge for market pricing, with the bond market throwing into question the central bank’s resolve, according to JPMorgan Asset Management. Investment banks are split over the monetary outlook. Bank of America predicted that the Fed would raise the borrowing costs by 25 basis points each at the remaining three meetings this year, while Citigroup forecast cuts amid cooling inflation and a softer labour market.