A gauge of Chinese tech shares trading in Hong Kong was poised to enter a technical bull market after DeepSeek’s artificial intelligence model ignited interest in China’s internet firms.
The Hang Seng Tech Index rose as much as 2.5%, taking its gains from a January low to over 20%. Xiaomi, Lenovo Group and Li Auto contributed the most to the advance on Friday. The gauge tends to be fairly volatile, having only hit a bear market last month.
The hype surrounding DeepSeek’s AI model has helped to counter concerns of a trade war after Washington slapped a 10% tariff on Chinese imports. Traders said tech shares held up well amid relief that the US levy was smaller than expected and Beijing’s response has been targeted.
“This is a sector that has been ignored but like other purely domestic sectors, there are some bright spots,” said Sat Duhra, portfolio manager at Janus Henderson Investors in Singapore. “The recent DeepSeek announcement is a timely reminder that behind the scenes, industrial policy — for example Made in China 2025 — has pushed many sectors toward world-class status.”
Despite the latest rally, the index is still more than 50% below a peak reached in early 2021.
See also: China's bull decade — inspiration and reinforcement
DeepSeek emerged as an AI threat after it unveiled an app developed at a fraction of the cost that US rivals spent to build their products, even amid curbs on imports of the most cutting-edge chips to China. The announcement wiped out half a trillion dollars of Nvidia’s market value.
Wall Street brokers had struck a bullish note after DeepSeek’s advancement, arguing that the Chinese discount will vanish as gauges top prior highs due to global recognition of the companies’ competitiveness.
“We think 2025 is the year the investing world realises China is outcompeting the rest of the world,” Deutsche Bank analyst Peter Milliken wrote in a Feb 5 report. “In 2025, China in one week launched the world’s first sixth generation fighter plane and its low-cost AI system, DeepSeek.”
See also: China's five-year plan bearing fruit
HSBC Holdings said the valuation gap between China and emerging markets may narrow, as foreign fund inflows pick up amid a growing awareness of Beijing’s technological innovation capabilities.
“In addition, A-share tech companies may also benefit from policy support,” Steven Sun, head of research at HSBC Qianhai Securities, wrote in a note. “The missing link is that innovation in China has yet to be translated into higher profitability, which can only be solved through demand-side stimulus.”
Over the past 24 months, most of the Nasdaq 100 Index’s gains have come from a handful of AI names, inflating valuations in the process. As a result, the tech-heavy benchmark is trading at 27 times forward earnings estimate — above its 10-year average, according to data compiled by Bloomberg.
In comparison, HSTECH is trading at 17 times forward earnings estimates.
To be sure, Morgan Stanley strategists reiterated their caution on China’s semiconductors and hardware stocks in a note dated Feb 1, citing broader tariff and other risks. These include the potential of the US expanding curbs on advanced chip sales to Beijing.
Southbound flows edged higher in January as onshore investors piled into Hong Kong tech shares, a trend that may prove resilient as AI tailwinds buoy Chinese tech firms, Bloomberg Intelligence strategist Marvin Chen wrote in a note.
Chart: Bloomberg
