Why China’s tech market is back in business
China’s tech companies are finally seeing the light of day in the stock markets after several challenging years.
On Friday, Hong Kong’s Hang Seng Tech Index closed 5.6% higher. The index is up 24% this year.
The rally is thanks to the recent rise of
DeepSeek,
a Chinese startup that released a new cost-competitive AI model last month.
Hong Kong’s benchmark
Hang Seng Index,
which includes tech heavyweights like Tencent Holdings and Alibaba Group Holding, closed 3.7% higher. The index has gained 13% since the start of the year — making it the top performer among major Asia equity benchmarks.
“The recent launch of DeepSeek R1, among other Chinese AI models, has demonstrated Chinese tech companies’ ability to develop globally competitive AI models,” wrote Goldman Sachs analysts in a Wednesday note.
Affordable Chinese models have stoked investor concerns about the massive investment in AI in the West. They also support the narrative of China’s evolving self-reliance and innovation in technology amid its geopolitical rivalry with the US.
AI-related stocks
on Wall Street sold off last month on fears of DeepSeek challenging Western companies.
The US market slump took place over long Chinese New Year holidays, but
Chinese tech shares
have been getting a boost from investors since the market reopened.
The main beneficiaries of the trend include Chinese e-commerce giant
Alibaba
, whose shares have staged a dramatic turnaround following years of stock declines after Beijing cracked down on cofounder
Jack Ma’s
tech empire amid economic troubles in the country.
Hong Kong-listed Alibaba shares closed 6.3% higher. New York-listed Alibaba shares closed 1% higher at $119.54 apiece on Thursday and are 41% higher this year.
Other Chinese tech firms in the market rally include gaming giant
Tencent,
search engine giant
Baidu,
consumer electronics firm
Xiaomi,
and electric car marker
BYD.
Shares in these companies are all up by double-digit percentage points this year.
On Friday, Chinese stocks received a boost after Reuters reported that Chinese leader Xi Jinping is expected to chair a meeting with private sector leaders, including Alibaba’s Ma and Tencent CEO Pony Ma, next week.
There are still risks for Chinese tech
The recent rally in China’s tech stocks is a contrast from the general slumber in Chinese tech stocks over the last few years even amid the rush into AI stocks on Wall Street.
But after the DeepSeek-related fracas hit big time over China’s Lunar New Year holiday, Chinese AI-related stocks have attracted strong fund inflows, wrote Steven Sun, the head of research at HSBC Qianhai Securities, in a Thursday note.
Trading turnover in the AI value chain now accounts for over 50% of mainland China’s A-share market, even though the stocks account for just 15% of the market’s capitalization, Sun wrote. The enthusiasm could result in stretched valuations in the short term.
In contrast to the huge gains in tech, China’s broader
CSI 300
Index only is up just 0.1% this year to date.
“The potential technology breakthrough in tech/AI development and application and potential cost benefit could materially alter the stock market return trajectory via the growth and valuation channels,” wrote Goldman Sachs’ analysts.
However, there are risks to the tech sector.
“In an arguably extreme case where the self-reliance effort falters and/or the US export controls intensify that result in a permanent degradation in trend growth, the earnings and valuation downside could combine to 2% potential reduction from current prices,” the Goldman Sachs analysts wrote.
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Business Insider
