DeepSeek's AI Advance Boosts Foreign Investor Confidence in China

In recent months, a burgeoning interest surrounding DeepSeek has captured the attention of the global financial landscape, leading to a noticeable uptick in the stock prices of Chinese companiesThis innovative initiative has not only influenced technology stocks but has also had broader implications for Chinese assets across various markets, including those listed in Hong Kong and other emerging sectorsAnalysts and investment firms worldwide have begun to bandwagon on this trend, revealing a significant shift in their valuation outlook towards Chinese stocks.

DeepSeek's rapid ascendance signifies a potentially transformative moment for the Chinese economyMany international financial institutions have updated their market strategies and reports to highlight the impact of this advanced, low-cost artificial intelligence modelAccording to a report released by Goldman Sachs, the enthusiasm from global hedge funds toward Chinese equities surged, especially during the week of February 3 to 7, when they showcased the strongest buying spree in four monthsThis trend demonstrates a growing belief in the long-term value of Chinese stocks, which are actively being revalued in light of DeepSeek's capabilities.

Business leaders and analysts assert that DeepSeek could serve as a catalyst for international investors to reassess their perceptions of China’s manufacturing and service sectorsDeutsche Bank’s head of research for Asia Pacific, Maliki Chin, pointed out that the rise of DeepSeek could indicate increasing global recognition of China's intellectual property and technological advancementsBy 2025, he predicts that investors will realize China's competitive edge in sectors of high added value, further solidifying its dominance within global supply chains.

Moreover, the sentiment is echoed by HSBC’s Chief Investment Officer for China, Quang Zhang, who emphasizes that DeepSeek is not only a significant technology development but also a macroeconomic event that is likely to shift investor focus away from previous concerns about China's economic challenges

Advertisements

He argues that if this success propels further government support for innovation in the private sector, it could yield substantial breakthroughs that bolster investor confidence in the Chinese stock market.

This change in sentiment comes after a period during which global investors have generally undervalued Chinese assetsChin notes a growing recognition that the expected percentage of Chinese market capitalization within global indices will not remain in the single digits for long, compelling Western investors to reconsider their asset allocations.

As these shifts take place, many top investment banks have begun issuing bullish ratings for Chinese assets, which reflects a growing appetite for such investmentsReports indicate that industry leaders, including David Tepper and his hedge fund Appaloosa LP, have ramped up their stakes in Chinese stocks and ETFs, signaling a trend of foreign capital flowing back into the Chinese markets.

Looking further into the business realm, UBS conducted a survey involving 156 entrepreneurs from multiple sectors in early 2025. The findings revealed a consensus that AI holds substantial potential, with approximately 62% of the respondents believing it could provide significant opportunities across various industries, particularly in technology and healthcareAdditionally, 75% of entrepreneurs based in the Asia-Pacific region foresee AI improving productivity, while 63% agree it will enhance customer experience and servicesGiven this broad understanding, many are preparing to invest in AI infrastructure, applications, and models.

UBS’s Asia-Pacific investment strategist, Sundeep Gantori, underscored that AI is undoubtedly reshaping how entrepreneurs conduct their businesses, reinforcing the sector's significance in current economic dynamics.

The emphasis on AI investment mirrors the sentiments prevailing among international investment firmsThere is an increasing recognition of the transformative potential of technology and the innovative opportunities it creates

Advertisements

Wang Zonghao from UBS pointed out that with the introduction of the DeepSeek R1 model, there has been a renewed interest in Chinese AI developmentsHe highlighted that AI-related stocks have seen a 15% rise since early 2025, significantly outperforming the MSCI China Index.

Learning from the experiences of previous technological cycles, including the transition to 4G and 5G, Wang noted the typical tendency for related companies to outperform the indices by 50% to 100%. This historic context suggests that the current focus on AI stocks, particularly software firms, may only be in its infancy regarding potential market rebounds.

Nevertheless, it is essential to approach the optimistic forecasts with cautionFinancial analysts from Chinese firms stress the need to vigilantly monitor changes in funding and policy landscapesThey argue that while the DeepSeek model symbolizes a breakthrough, a careful examination of the market's volatility and the potential for speculative behavior must guide investment strategiesHe Li, the general manager of Zhiguan Investment, articulated that the triple dynamics of technology advancements, policy incentives, and valuation recovery are reshaping the investment landscape in China.

Looking ahead to 2025, He anticipates a buoyant market shadowed by proactive fiscal policies and moderately relaxed monetary measuresHe suggests that new strategies stemming from "AI + consumption" and the promotion of "new productivity" policies could come into fruition, potentially triggering a valuation correction in Chinese assetsHowever, He also warned of existing uncertainties regarding the commercialization of the DeepSeek model and the shifting balances within the industry, which could disrupt established supply chains.

This perspective underscores the necessity for investors to adopt a diversified asset approachHe advocates for a multi-layered strategy encompassing components such as chips, cloud services, algorithms, and industry-specific applications, which could mitigate risks associated with singular market trends

Advertisements

Advertisements

Advertisements