Renminbi assets are increasingly viewed as a must-have component of globally diversified portfolios, with China's competitive edge in the artificial intelligence supply chain, improving corporate earnings and a strengthening yuan making the Chinese market difficult to overlook, said executives and analysts.

Janice Hu, China country head of UBS and chairperson of UBS Securities, said that international investors can no longer view the Chinese market through simply a bullish or bearish lens. "Without investing in China, their portfolio will not represent a final diversified allocation decision," she said.

China's stock market is now valued at nearly $15 trillion and accounts for roughly a quarter of the MSCI index universe, making Chinese assets an essential allocation for many global investors, she added.

Hu noted that the fundamentals are also improving. Earnings growth of A-share companies rebounded to more than 7 percent in the first quarter, prompting the Swiss investment bank to raise its full-year earnings growth forecast for A shares to 11 percent.

A strengthening yuan is providing an additional source of return for overseas investors, as UBS expects the yuan to appreciate 3 to 4 percent against major currencies this year.

UBS' optimism is part of rising foreign interest in China's capital market.

Liu Haoling, vice-chairman of the China Securities Regulatory Commission, said last week that overseas investors now hold more than 4 trillion yuan ($591 billion) worth of freely tradable A shares. Data from market tracker Wind Info shows that the number is up by nearly 1 trillion yuan compared with the end of June last year.

Beyond the inflows, analysts pointed to a structural shift in foreign investment preferences. While overseas investors previously focused on traditional sectors such as consumer stocks, they are increasingly turning to high-tech Chinese companies in emerging sectors such as AI, semiconductors and advanced manufacturing.

The trend was reflected in index adjustments announced by FTSE Russell on Wednesday. Newly added constituents to major China indexes were concentrated in areas such as optical communications, computing power infrastructure and high-end manufacturing — a move expected to attract additional passive capital inflows.

"AI is still a game changer, and China is an integral part of the global AI universe", which accounts for 10 percent and 16 percent of global AI-related market cap and revenue worldwide, respectively, Goldman Sachs said in a report, saying that it maintains an overweight rating on A shares.

Yuan Chuang, an analyst at Chasing Securities, said that China has secured a critical position in the global AI supply chain, making renminbi assets a strategic must for international capital seeking to participate in the next industrial revolution.

However, analysts cautioned against excessive speculation amid global discussions about potential AI-related asset bubbles.

Yang Delong, chief economist at First Seafront Fund, said that leading companies may be able to maintain their valuations through earnings growth over the long run, while stocks driven purely by themes and speculation could face sharp slumps.

The A-share market retreated on Friday amid a broader correction of Asian markets. The ChiNext Index, which tracks China's Nasdaq-style board for growth enterprises, shed 3.2 percent to close at 3,957.94 points on Friday, after hitting an all-time high on Thursday.