China tech stocks have entered a bull market thanks to DeepSeek’s AI innovation. The Hang Seng Tech index, which tracks the 30 biggest tech companies listed in Hong Kong, went up by 25%.
According to reports, the Hang Seng Index is now worth 10.2 times its estimated earnings, up from as low as 8 times in late 2023. This makes it the second-cheapest big market in the world.
Last month, the start-up shocked Silicon Valley when it released a large language model (LLM) using money it claimed was raised from friends and family.
According to analysts, investors now have a new theory that China is making progress on LLMs and that consumer-facing businesses could soon start using them. This means that the tables have turned to China being better at making tech more available and popular to more people.
Companies that work with cloud computing and tech hardware and stand to gain from AI advances have led the rally.
In the past month, Chinese markets have entered a bull market ahead of the Nasdaq 100 and the “Magnificent Seven” US tech giants. This has increased China’s confidence, which has been hit hard by worries about US President Donald Trump’s tariffs.
However, they trade for about half as much as the “Magnificent Seven” US tech giants. This means that they still have a long way to go.
China’s initiatives are supporting the bull market
Mainland Chinese funds bought more stocks in Hong Kong this year. This is major because it adds on to their record-breaking buying spree in 2024 as a major contributor to turning the city’s key tech index into a technical bull market.
Stock market data shows that the funds spent HK$138 billion ($17.7 billion) through the Stock Connect link so far this year, up to February 11. They put the most money into Hong Kong stocks since the cross-border trading link opened last year.
In addition, this year’s purchases were worth almost seven times as much as the same time last year. There has been a rise in technology stocks, such as Tencent Holdings, which runs WeChat, Xiaomi, which makes smartphones, and Semiconductor Manufacturing International Corp. (SMIC), which makes chips.
The most recent monthly data shows that mainland buyers bought a net of HK$43.6 billion worth of Tencent and HK$10.8 billion worth of SMIC in January. They also bought 1.2 billion Xiaomi shares and 1.5 billion Alibaba shares.
Chen Ximiao, an analyst at Guotai Junan Securities in Shanghai, said, “The recovery in sentiment will propel the market further and drive the valuation expansion of the Hang Seng Index […] Hong Kong’s market stands out for its high-quality listings and cheap valuations.”
Another factor is that onshore investors may be pushing the rally by keeping assets priced in Hong Kong’s pegged currency. This is done to protect themselves against the yuan’s falling value, which has been exacerbated by the new trade war with the US.
Louis Wong, a director at Phillip Capital Management in Hong Kong, said, “The yuan is likely to further depreciate […] If mainland investors opt to [park their money] in the Hong Kong stock market, they will benefit from the adjusted exchange rate.”
The US tech stock markets
The Nasdaq Composite, which is heavy on tech stocks, fell behind the major averages on Tuesday. Big names like Tesla dragged it down, and worries about spending on AI continue to affect the Magnificent Seven.
Chinese markets are also affecting US markets. After China’s BYD signed a deal with DeepSeek, Tesla’s price dropped more than 5%.
The news comes after Elon Musk, CEO of Tesla, offered to buy Microsoft’s OpenAI. CEO Sam Altman turned down the unexpected offer of $97.4 billion. The offer was a lot less than the company’s value. With the history between both CEOs, the offer was expectedly rejected.
In the same light, according to Colin Rusch, an analyst at Oppenheimer Tesla has changed its focus to be a physical AI play. However, Elon Musk’s bid for Open AI is a distraction from Tesla’s problems. The bid is 38% less than Open AI’s planned capital raise in October 2024. Therefore there will be no important conversations between the two.
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