HONG KONG, Dec 18 (Reuters) - Some Asian hedge funds are

betting on leading Chinese tech companies such as Xiaomi ( XIACF )

and Baidu ( BIDU ), buoyed by their artificial

intelligence innovations, despite the threat of further U.S.

curbs that could take effect next year.

A U.S. ban imposed on advanced chip exports to China has

kept many global investors on the sidelines. But those scouring

China for potential winners said firms there are developing AI

products for a massive home market as their self-developed large

language models catch up, and valuations are lower than their

U.S. peers.

Fund managers say they are particularly upbeat about growing

AI adoption in the lives of China's 1.4 billion people, from

mobile phones and smart wearables to social apps and games.

"Chinese innovations are reaching end-users rapidly,"

said Nilesh Jasani, founder of GenInnov Funds and former vice

chairman for Asia at Jefferies.

"We have been extremely excited by China's ascendancy in

mobility and mobiles, benefiting names like Xiaomi ( XIACF ) and Baidu ( BIDU ),"

he said, noting his fund has been raising exposure to China.

China's leading search engine company Baidu ( BIDU ) recently

launched a text-to-image generation tool for its ad clients. It

also plans to release AI glasses early next year and debut its

robotaxi service outside mainland China.

Hong Kong hedge fund Monolith Management, which manages

assets worth $300 million, has set its sights on smartphone

maker Xiaomi ( XIACF ) and its suppliers.

"Xiaomi ( XIACF ) offers compelling edge AI user experience through

its self-developed HyperOS, with a larger ecosystem of IoTs and

cars to tap into, compared to its Western counterparts," said

Timothy Wang, chief investment officer at Monolith.

Chinese tech stocks have lagged behind their U.S.

counterparts in this year's global AI frenzy.

The Hang Seng Tech Index and CSI AI sector

have risen 19% and 21%, respectively, while the

Nasdaq 100 has gained over 30%.

But Wang predicts growth opportunities for China's homegrown

AI-powered products and services in the coming year. The

advances would be driven by the proliferation and

commercialisation of large language models, coupled with the

country's supply chain strengths and a wealth of skilled product

managers, he said.

ByteDance's AI chatbot Doubao became the world's second most

popular AI application in November with 60 million monthly

active users, only behind ChatGPT, according to Aicpb.com.

"We are seeing breakthroughs in AI software, such as

text-to-video generation and multimodal AI," said Sean Ho, CIO

of Triata Capital, which manages $770 million in assets.

"The high rankings of Chinese AI models on open-source

platforms like Hugging Face reflect their ambition to lead

globally, a trend that is unlikely to be derailed by ongoing

tech conflicts," he said in recent investor communications.

Not everyone is convinced, especially as U.S., Taiwan, and

Japan semiconductor stocks dominate tech investors' portfolios

and deliver strong results.

Eventually, it comes down to whether AI can boost earnings

growth, said Andy Maynard, head of equities at China Renaissance

Securities.

"China is clearly lagging the U.S. in terms of monetisation

at the listed company level," he said.