Chinese Tech Stocks Poised for Growth

Chinese A shares have experienced a robust rally, marking a positive trend for a second consecutive session. This surge is encouraging as investors reassess the potential of Chinese stocks, particularly following surprising advancements in the nation’s artificial intelligence (AI) models.

DeepSeek, a private AI startup in China, is leading this charge. Its recent success has reaffirmed China's ability to innovate in the AI space. This development may encourage global investors to acknowledge China's strengths across various sectors, suggesting that the A-share market could surpass previous highs in the medium term.

On Friday, the Shanghai Composite Index climbed by 1.01 percent, closing at 3303.67 points. This marks the first time this year that it has ended above the 3,300 mark, following a 1.27 percent increase on the prior day.

Additionally, the ChiNext Index, which tracks China's growth enterprise market, saw a significant gain of 2.53 percent, finishing at 2174.35 points after a 2.8 percent rise on Thursday.

Market data from Wind Info indicates that total market turnover reached 2 trillion yuan (approximately $274.43 billion) on Friday, the highest level recorded in over a month. This increase was spurred by DeepSeek's achievements, which also benefited various sectors such as smart vehicles, computer hardware, software, and the internet.

David Chao, a global market strategist at Invesco, noted that investors are beginning to recognize the growing capabilities of Chinese AI firms, which now parallel those of leading US companies. Chinese tech stocks, especially in the technology sector, are currently valued at a significant discount compared to their American counterparts. As the gap in AI development narrows, a similar trend could emerge regarding stock valuations.

Chao also emphasized that despite US export restrictions on hardware, Chinese technology firms continue to demonstrate innovation, particularly in software.

Moreover, on Friday, China intensified its efforts to enhance technological innovations by providing increased financial support. A new guideline from the China Securities Regulatory Commission promises to bolster high-quality science and technology firms in their efforts to become publicly listed.

This guideline pledges to support strategic industries, including next-generation information technology, AI, aerospace, new energy, new materials, high-end equipment, biomedicine, and quantum science and technology.

Invesco is not alone in its optimistic outlook for Chinese tech stocks. Peter Milliken from Deutsche Bank has stated that the technological achievements of China have been undervalued by investors, but that this underestimation is set to change. According to Milliken, it is now “impossible to overlook” China’s improved performance across various sectors such as manufacturing and services.

Milliken believes that the bull market for both H shares and A shares commenced in 2024 and will surpass previous high points in the foreseeable future.

The A-share market reached 3674.4 points last October, its highest in nearly three years, although it has seen a decline since then.

Yang Delong, the chief economist at First Seafront Fund, predicts that the A-share market will continue on an upward trend, potentially surprising many investors. This is partly due to ongoing macroeconomic adjustments and a shift of household savings from the property market to equity assets.

Yang mentioned, “Once the market begins to generate profits, a positive cycle could develop, where rising stock prices lead to profits and an influx of new investors.” He further stated that achieving a level around 4,000 points for the SCI within this year may be a realistic target, highlighting potential growth in sectors such as humanoid robotics and new energy.

However, it is important to note that new tariffs imposed by the US on Chinese goods could introduce risk-aversion among investors, potentially placing additional pressure on A shares, according to reports from CGS International.

stocks, China, AI