DeepSeek's AI Breakthrough Fuels China Tech Stock Rally

The Hang Seng Tech index has risen 25% from its January low, entering a bull market, as investors reassess China's tech sector following DeepSeek's artificial intelligence breakthrough. Major companies such as Alibaba, Xiaomi, Baidu, and BYD have led the charge, with foreign investors showing particular interest in companies on the CSI A500 Index, which includes industry leaders from emerging sectors like information technology and communication services.

The rally in Chinese tech stocks has been driven by a renewed wave of investor optimism, with DeepSeek's AI model reshaping global perceptions about China's technological capabilities. While US tech stocks have struggled, with the Nasdaq 100 rising just 4.4% over the same period, the "Magnificent Seven" recording less than 0.5% gains on an equal-weighted basis, Chinese tech stocks have surged, particularly companies positioned to benefit from AI innovations.



Investor enthusiasm is reflected in the sharp increase in trading volumes through the Stock Connect program, which allows mainland Chinese investors to buy Hong Kong-listed stocks. Average daily turnover in February was two-thirds higher than in January and three times higher than the same month last year. Analysts attribute this surge in interest to the belief that Chinese development of large language models (LLMs) is advancing, and consumer-facing companies will rapidly adopt them.

Citi analysts have noted that AI investment in China remains underappreciated by global investors, with the US strong in zero-to-one innovation but China stronger in one-to-100 innovation, in terms of widening access and adoption of tech. As China's tech sector continues its rapid recovery, investors will be closely watching how AI adoption plays out and whether the momentum can be sustained in the face of geopolitical uncertainties.

In conclusion, DeepSeek's AI breakthrough has fueled a reappraisal of Chinese tech stocks, with major companies leading the charge in a bullish rally. Investor enthusiasm, driven by the belief in China's advancing AI capabilities, has translated into higher trading volumes and a surge in interest in Chinese tech stocks. As the AI industry continues to grow, led by DeepSeek, demand for related sectors such as servers, chips, data centers, and cloud computing is expected to surge, driving up stock prices in China's related industries and creating sustained growth opportunities.