China Tech ETFs Surge as AI Startup DeepSeek Sparks Investor Optimism

Chinese Tech ETFs Attract Significant Investor Interest

In a notable shift in investor sentiment, Chinese technology-focused exchange-traded funds (ETFs) have seen a surge in popularity, driven by growing optimism surrounding artificial intelligence (AI) advancements. This trend has been particularly evident in the wake of the DeepSeek-driven technology rally, which has reignited interest in Chinese tech stocks 1

KraneShares CSI China Internet Fund Leads the Charge

The $7.8 billion KraneShares CSI China Internet Fund (KWEB) has emerged as a frontrunner in this trend. Last week, KWEB recorded an impressive $637 million in inflows, marking its most significant influx since October's rally. This represents the fourth consecutive week of new money entering the fund, underscoring the renewed investor confidence in Chinese technology stocks 1

Bullish Options Activity Signals Investor Optimism

The bullish sentiment extends beyond mere fund inflows. Traders have been actively engaging in options markets, showing a clear preference for upside potential in Chinese equity ETFs. The KraneShares CSI China Internet ETF (KWEB) and the iShares Trust-China Large-Cap ETF (FXI), which collectively manage about $15 billion in assets, have seen a surge in bullish options activity 2

DeepSeek: A Catalyst for Chinese AI Optimism

The recent rally in Chinese stocks can be largely attributed to the emergence of DeepSeek, a Chinese AI startup. In late January, DeepSeek rolled out a free AI assistant that reportedly uses cheaper chips and less data, potentially challenging the United States' position as an AI superpower. This development has led investors to bet on a potential boom in the Chinese AI sector, with FXI shares rising about 12% and KWEB shares up 14% since DeepSeek's announcement 2

Easing Trade Tensions Contribute to Positive Outlook

Adding to the optimistic sentiment is the perception of easing U.S.-China trade tensions. Despite initial campaign promises of significant tariffs on Chinese imports, the current U.S. administration has adopted a softer stance. This shift has encouraged global hedge funds to increase their Chinese stock positions, anticipating potential profits from improved trade relations or a united front against protectionist policies 2

Implications for the Global AI Landscape

The surge in Chinese tech ETFs and the excitement surrounding DeepSeek's AI advancements signal a potential shift in the global AI landscape. As Alex Kosoglyadov, managing director for equity derivatives at Nomura, notes, "People are definitely growing optimistic about China's potential to produce an AI ecosystem that's competitive with what the U.S. has been building out" 2

. This development could intensify the Sino-U.S. technology competition, with far-reaching implications for the global tech industry and international relations.