DeepSeek ignites a frenzy of AI investment in China, is Hong Kong's A-shares set to replicate the "US stock bull market" of 2023?

According to the Zhitong Finance APP, the performance of the open-source AI large model DeepSeek R1, which has capabilities comparable to OpenAI's o1 model but with significantly lower AI training and inference costs, has sparked a global bullish sentiment among investors towards Chinese internet companies as well as leading Chinese semiconductor and software firms. The benchmark index for Chinese technology stocks traded on the Hong Kong stock market—the Hang Seng TECH Index—has entered a "technical bull market." In the A-share market, the ChiNext, which includes numerous technology stocks, surged over 3% by the close on Friday morning, with a weekly increase approaching 7%. This index has been in a prolonged sideways movement since October but has recently rebounded significantly following the frenzy in Chinese tech stocks triggered by DeepSeek.

As of the midday market close, the Hang Seng TECH Index rose 2.79%, marking an increase of over 20% from its low in January. Xiaomi, Lenovo, and Li Auto were the main technology companies driving the index's rise on Friday. Notably, this index is highly volatile, having previously plunged into "technical bear market" territory last month. Despite the recent sharp rebound, the Hang Seng TECH Index remains over 50% lower than its peak in early 2021.

In the Hong Kong stock market, the optimistic sentiment anticipating a "long bull market" is even more fervent than in the A-share market. Benefiting from the Federal Reserve's interest rate cuts and the liquidity support provided by domestic monetary stimulus policies, the Hong Kong stock market is enjoying the "dual liquidity dividend" from both the U.S. and China. Coupled with the recent investment frenzy in Chinese AI triggered by DeepSeek, the Hong Kong stock market serves as a gateway for foreign investment in China, as well as the best entry point for foreign institutions like Goldman Sachs, Morgan Stanley, and JP Morgan to invest in Chinese companies, attracting hedge funds and asset management institutions to flock to the Hong Kong stock market.

The unprecedented "artificial intelligence boom" in the Hong Kong and A-share markets, sparked by the emergence of the DeepSeek R1 model, has helped alleviate negative concerns regarding the 10% tariff imposed by the U.S. on Chinese imports. Traders have noted that technology stocks in the Chinese stock market (including both the Hong Kong and A-share markets) have performed well against the backdrop of U.S. tariffs being lower than expected and China's responses being precise and targeted.

Will the 2023 U.S. stock market "mad bull market" be the script for Hong Kong and A-shares?

Such a heated sentiment inevitably reminds one of the AI investment boom triggered by the global popularity of ChatGPT in 2023, which led major companies to lay out AI strategies, and NVIDIA's unparalleled quarterly earnings reports that ignited the AI investment frenzy, subsequently driving the U.S. stock market's mad bull market in 2023. During this year, the benchmark U.S. stock index—the S&P 500—rose by 25%, while the Nasdaq 100 index, known as the bellwether for global technology stocks, skyrocketed by 55%. The 2023 U.S. stock market mad bull market was primarily led by Wall Street investment banks such as Goldman Sachs and numerous leveraged hedge funds Looking at the current trends in Hong Kong and A-shares, the domestic liquidity support policies and fiscal stimulus, combined with the investment frenzy in Chinese AI ignited by DeepSeek, have generated a bullish market sentiment and a fervent enthusiasm among Asian investors that can rival the unprecedented AI-driven "crazy bull market" in the U.S. stock market in 2023.

As a non-strict benchmark, the CSI 300 Index, which encompasses almost all core Chinese assets, has been compared by some institutions to the S&P 500 Index, which is considered the core asset of the United States. In terms of scale, the CSI 300 Index, along with the S&P 500 Index, the STOXX 600 Index, and the Nikkei 225 Index, constitutes what is known as "global core assets," and the scale and influence of the CSI 300 Index are second only to the S&P 500 Index.

At the same time, the Hang Seng TECH Index, which includes Chinese tech giants such as Alibaba, Tencent, and Baidu, is known as the "Eastern Nasdaq" and has been compared by some institutions to the Nasdaq 100 Index, which includes American tech giants like Apple, NVIDIA, Microsoft, and Google. It is believed that as the performance and market capitalization of these Chinese tech giants continue to grow, the future "full Hang Seng TECH Index" may resemble the Nasdaq 100 Index.

Goldman Sachs, a major Wall Street investment bank, after experiencing the "DeepSeek shockwave" that severely impacted U.S. tech giants, reiterated its bullish enthusiasm for the Chinese stock market. Goldman Sachs expects that under a neutral outlook, the MSCI China Index is likely to see a 14% increase this year to 75 points, while under an optimistic outlook, the index's increase could soar to 28%. Goldman Sachs emphasized that stocks in the "soft tech" sector are expected to outperform the overall market. The MSCI China Index includes core Chinese assets such as Alibaba, Tencent, Kweichow Moutai, and China Yangtze Power, currently hovering around 67 points.

When Alibaba and Tencent showcase their labels of "cutting-edge AI large models + powerful cloud AI computing power systems + complete AI application software developer platforms," and as the scale of these labels grows with the penetration of AI application software into various industries in China, the future market size is expected to rival that of Amazon AWS and Microsoft, potentially triggering an investment boom similar to the influx of global funds into North American cloud computing giants in 2023-2024.

The new AI large model technology route led by DeepSeek, centered on "low cost" and "high energy efficiency," is expected to bring an overall decline in costs across the AI industry chain. For Chinese tech companies focusing on the AI application end, such as major internet firms and consumer electronics companies, as AI applications accelerate their penetration into various industries in China, leading to a significant transformation in productivity, there will inevitably be more market opportunities and a much larger demand for AI application and inference computing power. If killer-level AI application software/AI agents begin to emerge on a large scale starting in 2025, it would be a significant boon for cloud giants like Alibaba, Tencent, and JD.com. These AI software, whether in the early stages of AI software developer ecosystem platforms or in the later stages of massive cloud AI inference computing power resources, rely heavily on the robust computing power platform support provided by these cloud giants. These cloud giants are focusing on the layout of B-end and C-end AI application software developer ecosystems related to generative AI, aiming to comprehensively lower the technical barriers for non-IT professionals in various industries to develop AI applications.

Sat Duhra, a portfolio manager from Janus Henderson Investors in Singapore, stated: “This is a long-overlooked industry, but like other purely domestic industries, there are still many highlights. The recent shocking release of DeepSeek reminds us that behind the scenes, major domestic industrial policies—such as 'Made in China 2025'—have propelled many industries to world-class levels.”

Deutsche Bank declares that the valuation discount in the Chinese market will disappear, and 2025 may welcome a "Sputnik moment"

Since the release of DeepSeek's performance comparable to OpenAI's o1 open-source AI large model, Chinese internet giants and other tech companies have become emerging threats in the U.S. AI field. Despite facing restrictions from Western countries on importing the most advanced chips, the development costs of DeepSeek applications are far lower than those of American competitors. This release caused the market value of "AI chip giant" NVIDIA to evaporate by more than $500 billion in a single day.

Recently, the DeepSeek R1 large model developed by the AI engineering team from DeepSeek in China has topped the U.S. trending searches, and DeepSeek applications have consistently ranked first in the free app download charts in both the Chinese and U.S. app stores, surpassing ChatGPT in the U.S. download rankings.

The DeepSeek team has proven that they can train a groundbreaking open-source AI large model with top-notch inference capabilities at a very low cost, without the world's top NVIDIA high-performance AI GPUs providing strong AI computing power. With an extremely low investment cost of less than $6 million and under the conditions of 2048 H800 chips with performance far below H100 and Blackwell, the DeepSeek team has created an open-source AI model with performance comparable to OpenAI's o1. In contrast, the training costs for Anthropic and OpenAI reach as high as $1 billion, while DeepSeek's pricing for inference input and output tokens can be described as a "deeply discounted" promotion compared to OpenAI's pricing.

As this "DeepSeek low computing power cost storm" from the East sweeps across the globe, investors are beginning to strongly question whether the AI spending plans of American tech giants, which can be described as frenzied, are reasonable. After all, expenditures reaching hundreds of billions of dollars, compared to DeepSeek's mere million-dollar-level costs, leave these American tech stock investors both shocked and furious. Due to concerns that the "low-cost AI large model computing power paradigm" led by DeepSeek will prompt tech giants to significantly reduce AI GPU orders in the short to medium term, NVIDIA's stock price plummeted nearly 17% last Monday, with a single-day market value evaporation of $589 billion. For the largest market value loss in the history of the US stock market.**

Wall Street traders generally hold a bullish view on the Chinese stock market after the emergence of DeepSeek, believing that as the global competitiveness of Chinese technology companies is recognized, their "China discount" will completely disappear, and stock indices are expected to break through previous historical highs.

Deutsche Bank analyst Peter Milliken wrote in a report released on February 5: “We believe that 2025 will be the year when the global investment community realizes China's competitiveness surpasses that of other countries. In 2025, China released the world's first sixth-generation fighter jet and its ultra-low-cost + high-performance open-source AI model DeepSeek within a week.”

Deutsche Bank's latest research report centers on the concept of "China's Sputnik moment," arguing that China's technological innovation has triggered a "cognitive leap" globally. American Silicon Valley investor Marc Andreessen even referred to the release of DeepSeek as the "Sputnik moment of AI," symbolizing that the rise of Chinese technology can no longer be ignored. (The Soviet Union successfully launched the world's first artificial satellite, Sputnik 1, in 1957, and the "Sputnik moment" thus became a symbol of a significant shift in the global competitive landscape).

The report points out that 2025 will be a year for global investors to reassess the Chinese stock market. From textiles, steel to electronics, and the rapidly rising new energy vehicles, nuclear energy, high-speed rail, and artificial intelligence (AI) in recent years, Chinese companies have demonstrated strong global competitiveness, and the market is expected to re-evaluate the "China discount," driving Chinese A-shares and Hong Kong stocks into a long-term bull market.

Deutsche Bank expects that the Chinese stock market will enter a long-term bull market in 2025, with Hong Kong and A-shares becoming the focus of global investors. Especially in the context of uncertainty in Federal Reserve policies, the recession of manufacturing in Europe and the US, and the decline in the competitiveness of Western companies, global funds may be reallocated to the Chinese market.

HSBC stated that as the scale of foreign capital inflows continues to increase, and China's technological innovation capabilities are increasingly recognized globally, the valuation gap between the Chinese stock market and other emerging markets may narrow.

Over the past 24 months, most of the gains in the Nasdaq 100 index have come from a few tech giants, leading to inflated valuations and extremely high market capitalization concentration. As a result, the forward price-to-earnings ratio of this tech-dominated benchmark index is as high as 27x, exceeding its 10-year average, while the forward price-to-earnings ratio of the Hang Seng TECH Index is only 17x.

Of course, there is also cautious sentiment on Wall Street regarding the Chinese stock market. Morgan Stanley's strategist team reiterated their cautious stance on Chinese semiconductor and hardware stocks in a report on February 1, pointing out tariffs and other risks, including the possibility of the US government expanding restrictions on the sale of advanced chip systems to China.

According to a report by Bloomberg Intelligence strategist Marvin Chen, southbound funds slightly increased in January, with domestic investors heavily buying technology stocks in the Hong Kong stock market. As DeepSeek fully ignites the investment frenzy in Chinese AI, this trend of capital inflow may continue