DeepSeek's AI Breakthrough Sparks Chinese Stock Rally, Shifting Investment from India

DeepSeek has stoked a rotation out of India stocks into Chinese equities -- but experts advise caution

DeepSeek's breakthrough in artificial intelligence has boosted investor sentiment around China stocks, with a gauge of the country's onshore as well as offshore shares soaring over 26% since its January low. The surge in Chinese equities comes at a time when Indian stocks have been languishing in correction territory, with experts pointing to a rotation away from India into China. "Every time the China market goes up, the India market goes down," said Thio Siew Hua, managing director and head of equities at Lion Global Investors. China's CSI300 had given negative returns for three straight years before logging strong gains last year, while Indian equities have seen secular growth for the past nine years, but returns in 2024 were much lower than the year before. "You need to sell something to fund something new, so that's what's happening, especially with the disappointments that we've seen in India," she told CNBC. Chinese stocks, led by a tech rally, have been on a tear since the release of DeepSeek's R1 model in January as it challenged the U.S.-led AI ecosystem, claiming superior performance at much lower costs than the more established AI players. The Hang Seng Tech Index, which tracks the 30 biggest technology firms listed in Hong Kong on Friday hit its highest in nearly three years. Meanwhile, the MSCI China Index -- up 26.5% so far from its January low -- has gained nearly 18% this year, while the MSCI India index has lost over 7% year to date. The re-allocation into China is driven by a stronger narrative on several fronts, said Abrdn's head of equities investment specialists for Asia and EM, Alex Smith.

DeepSeek Sparks China Stock Surge as Indian Market Stumbles

Nomura's recent findings reveal that global investors reflect new investor confidence in Chinese markets. Reallocating their share of global capital by reducing 50% of funds from Indian markets by January end. This reallocation trend gains momentum as more investors recognize the potential of China's evolving tech sector's promise in its technological capabilities and economic prospects. Market experts appreciate the promise in China's AI rally with a caution that investors should maintain a balanced perspective. This new tech-led market can only be sustained with and . Now, the new market outlook must decide on regional investment depending on the global economic conditions, making it essential for investors to monitor broad market conditions alongside technological developments. DeepSeek has changed the tech sector for the Asian markets. Chinese companies have demonstrated their ability to compete against global competitors, especially in the artificial intelligence sector. For international investors, the new innovations in the tech sector have started influencing the patterns in their investment planning. Now, just with the launch of tech without even reaching its entire promise, investors flock from one market to another. This is a wake-up call for Indian tech companies and their regulatory bodies. This millennium now belongs to Artificial Intelligence, and whoever can do greater calculations and train AI models at lower cost will become the eye candy of investors. Though how long China can maintain this lead is debatable, it has shown the world that it has a place in this new AI market and wants to dominate it.

China stocks seen ready for change as Xi's tech detente lifts sentiment

In addition to the Xi's meeting with China's tech VIPs, the mood-shift also owes much to the combination of buzz around DeepSeek, which says it has developed a cut-price AI model and relief that China has not been hit with big US sanctions.The case for buying Chinese stocks - particularly tech shares - is improving, perhaps enough to tempt back long-term investors, investment banks say, noting the emergence of AI startup DeepSeek and a meeting between Xi Jinping and business leaders in the sector. Bank of America Securities said the view on China could be shifting to "investable" from "tradable". That would be a significant change in mindset and money flows as big foreign investors have generally spent months or even years on the sidelines and tend to hold only small, short-term positions. "(Last year) many investors we spoke to still regarded China as a 'trading market' - fast money comes and goes to play the trading bounces, whereas global long-term capital remains unconvinced and little involved," BofA China equity analysts said in a February 17 note. "Encouragingly, we think the fundamental investment thesis for China has been improving," they added, citing longer-term tailwinds such as rising dividends and investment flows from insurers. In a similar vein, Goldman Sachs upgraded its targets on Chinese stock indexes on Monday, estimating that AI adoption could boost earnings growth and potentially bring in $200 billion of inflows. A day later, Hong Kong's Hang Seng came within a whisker of three-year highs as investors cheered Xi's Monday meeting with Alibaba co-founder Jack Ma and others as a sign of detente between private enterprise and the Communist state and that a crackdown on tech giants was over. "Jack Ma's appearance is highly symbolic, as his company bore the brunt of the previous regulatory campaign," Macquarie economists Larry Hu and Yuxiao Zhang said in a note. The Hang Seng has risen 14.5% this year, vying with Germany's DAX for the title of best performing major market. Buying has been concentrated in tech shares, with the Hang Seng Tech index surging 33% in just a month. Alibaba's stock has risen 53% this year, gaining 3% on Tuesday after Ma was shown on TV shaking hands with Xi and up 8% since Reuters first reported the plans for the meeting. Terrific ten In addition to the Xi's meeting with China's tech VIPs, the mood-shift also owes much to the combination of buzz around DeepSeek, which says it has developed a cut-price AI model and relief that China has not been hit with big US sanctions. Under the spotlight are the so-called "Terrific Ten" Chinese tech stocks as an alternative to the US Magnificent Seven. "China's Terrific Ten can only be described as crushing the Magnificent 7," said Jeff Weniger, head of equity strategy at WisdomTree Asset Management, on X. "This kicked off a half year ago, but so few have noticed." The Ten are e-commerce heavyweights Alibaba and JD.com , automakers Geely and BYD, tech conglomerate Xiaomi, online giants Tencent and Netease, search-engine operator Baidu, food delivery firm Meituan and chipmaker SMIC. To be sure, brokers warn much of the rally has been driven by hedge fund and retail investor money, which is prone to leaving quickly. But the fact that positioning is so light has many anticipating that there is fuel for further gains. "While it is hard to predict the duration of this AI-driven rally in China internet stocks, we firmly believe that this trend will last more than a month," J.P. Morgan analysts led by Alex Yao wrote in a February 17 note. "The AI boom in the US stock market has been steadily advancing for two years, during which the average stock price of the 'Mag 7' has risen by 256%." The Magnificent Seven consist of Alphabet, Amazon , Apple, Meta, Microsoft, Nvidia and Tesla.

China stocks seen ready for sea change as Xi's tech detente lifts sentiment

* Xi meeting tech bosses a pro-business shift -Macquarie * China's 'Terrific Ten' outperform Magnificent 7 over past six months HONGKONG/SHANGHAI, Feb 18 (Reuters) - The case for buying Chinese stocks - particularly tech shares - is improving, perhaps enough to tempt back long-term investors, investment banks say, noting the emergence of AI startup DeepSeek and a meeting between Xi Jinping and business leaders in the sector. Bank of America Securities said the view on China could be shifting to "investable" from "tradable". That would be a significant change in mindset and money flows as big foreign investors have generally spent months or even years on the sidelines and tend to hold only small, short-term positions. "(Last year) many investors we spoke to still regarded China as a 'trading market' - fast money comes and goes to play the trading bounces, whereas global long-term capital remains unconvinced and little involved," BofA China equity analysts said in a February 17 note. "Encouragingly, we think the fundamental investment thesis for China has been improving," they added, citing longer-term tailwinds such as rising dividends and investment flows from insurers. In a similar vein, Goldman Sachs upgraded its targets on Chinese stock indexes on Monday, estimating that AI adoption could boost earnings growth and potentially bring in $200 billion of inflows. A day later, Hong Kong's Hang Seng came within a whisker of three-year highs as investors cheered Xi's Monday meeting with Alibaba co-founder Jack Ma and others as a sign of detente between private enterprise and the Communist state and that a crackdown on tech giants was over. "Jack Ma's appearance is highly symbolic, as his company bore the brunt of the previous regulatory campaign," Macquarie economists Larry Hu and Yuxiao Zhang said in a note. The Hang Seng has risen 14.5% this year, vying with Germany's DAX for the title of best performing major market. Buying has been concentrated in tech shares, with the Hang Seng Tech index surging 33% in just a month. Alibaba's stock has risen 53% this year, gaining 3% on Tuesday after Ma was shown on TV shaking hands with Xi and up 8% since Reuters first reported the plans for the meeting. In addition to the Xi's meeting with China's tech VIPs, the mood-shift also owes much to the combination of buzz around DeepSeek, which says it has developed a cut-price AI model and relief that China has not been hit with big U.S. sanctions. Under the spotlight are the so-called "Terrific Ten" Chinese tech stocks as an alternative to the U.S. Magnificent Seven. "China's Terrific Ten can only be described as crushing the Magnificent 7," said Jeff Weniger, head of equity strategy at WisdomTree Asset Management, on X. "This kicked off a half year ago, but so few have noticed." The Ten are e-commerce heavyweights Alibaba and JD.com , automakers Geely and BYD, tech conglomerate Xiaomi, online giants Tencent and Netease, search-engine operator Baidu, food delivery firm Meituan and chipmaker SMIC . To be sure, brokers warn much of the rally has been driven by hedge fund and retail investor money, which is prone to leaving quickly. But the fact that positioning is so light has many anticipating that there is fuel for further gains. "While it is hard to predict the duration of this AI-driven rally in China internet stocks, we firmly believe that this trend will last more than a month," J.P. Morgan analysts led by Alex Yao wrote in a February 17 note. "The AI boom in the U.S. stock market has been steadily advancing for two years, during which the average stock price of the 'Mag 7' has risen by 256%." The Magnificent Seven consist of Alphabet, Amazon , Apple, Meta, Microsoft, Nvidia and Tesla. (Additional reporting by Jiaxing Li in Hong Kong and Ankur Banerjee and Tom Westbrook in Singapore; Editing by Shri Navaratnam and Edwina Gibbs)

Chinese Stocks Rally on Strong Alibaba Earnings, DeepSeek Optimism

Chinese equities surged as upbeat earnings by big tech companies further ignited sentiment, adding to a recent rally driven by leader Xi Jinping's meeting with top corporate executives and the AI hype around homegrown startup DeepSeek. Hong Kong's benchmark Hang Seng Index soared to a three-year high on Friday, ending 4.0% higher at 23477.92. The Hang Seng Tech Index, which tracks the 30 largest tech companies listed in the city, rose 6.5%, its biggest one-day gain since October, when investors' mood was lifted after Beijing's aggressive stimulus in late September. The Shanghai Composite Index rose 0.85% and the Shenzhen Composite Index climbed 1.6%. Investors have become increasingly bullish on Chinese equities after a week of positive news for the world's second-largest economy. E-commerce giant Alibaba reported better-than-expected earnings; Chinese President Xi met with tech business leaders, signaling that the private sector was back in Beijing's favor; and more companies announced integrations of DeepSeek's AI large language model into their products and services. "DeepSeek has attracted global attention as it shows China's ability to compete at the highest level in AI," HSBC Global Research analysts wrote in a note. Foreign fund inflows have picked up over the past two weeks, they said. Technology stocks led the advance as several leading Chinese companies reported earnings beats on Thursday. Alibaba Group and PC maker Lenovo Group surged 15% each on Friday. Bilibili soared 16%. "From a long-term perspective, we turn more positive on the outlook for the China stock market," Daiwa analysts Patrick Pan and Yue Tan said in a note. China's technological breakthroughs and Beijing's pro-business shift are "game changers for China stock prices," they said. Before the DeepSeek-led rally in Chinese stocks, market sentiment was subdued, given investors' concerns about the lack of a long-term growth driver, a prolonged property downturn and weak domestic consumption. While the sentiment has become more optimistic, some analysts have remained cautious. Goldman Sachs said Xi's meeting on Monday was a clear sign from the top leadership that China will support private enterprises, but implementation, including more demand-side stimulus and market-friendly policy reforms, remain key to rebuilding investors' confidence. Analysts at Daiwa said expectations for Beijing's policies are now high ahead of the National People's Congress meeting in early March, where top policymakers will release their economic plan for the year and the GDP growth target for 2025. Investors might be setting themselves up for disappointment, they said.

China tech stocks cap best winning run in five years on earnings surprises, fund rotation

HONG KONG (Reuters) - Chinese tech stocks listed in Hong Kong advanced on Friday for their best weekly winning streak since 2020, as earnings surprises and optimism about the artificial intelligence sector drew global investors rotating funds into the sector. The Hang Seng Tech Index closed up 6.5%, its best single-day gain since October, to reach its highest in three years. That took its weekly gain to more than 6% in its sixth straight week of advances, the longest winning streak since May 2020. Hong Kong's benchmark Hang Seng Index advanced 4% to a three-year high. Alibaba surged 14.6% to the highest since late 2021, after the Chinese e-commerce giant reported better-than expected-revenue and said it plans to invest more in e-commerce and AI. Lenovo advanced over 15% to near a ten-year high after quarterly results smashed estimates, while Xiaomi added 5.2%, hitting a record high. Chinese tech stocks have been on a tear since the launch of low-cost AI model DeepSeek last month that reignited global investors' interest in China and spurred funds into rotating into the sector because of its relatively cheap valuations. Investors bet President Xi Jinping's rare meeting with the country's biggest business leaders - including Alibaba's founder Jack Ma - could signal a policy U-turn following years of crackdowns on the sector, further fuelling the rally. "There's more to go with the valuation discount to emerging markets to narrow more," HSBC analysts said in a note, also citing the return of foreign investment inflows during the last two weeks. Onshore stocks also edged up on Friday, with the bluechip CSI 300 Index adding 1.3% and the Shanghai Composite Index climbing 0.9%. Both benchmarks are at the highest level since late December. China's tech rally has helped add more than $1.3 trillion to the country's onshore and offshore equity markets in just a month, driving investment flows away from India and into China, said James Cook, investment director of emerging markets at Federated Hermes, adding that Chinese companies are fast catching up with the global AI frenzy after missing out. (Reporting by Jiaxing Li in Hong Kong; Editing by Sonali Paul and Janane Venkatraman)