Chinese technology stocks have entered a bull market, with the Hang Seng Tech index surging more than 25% from its January low.
The sharp rally follows a renewed wave of investor optimism, driven in part by DeepSeek’s artificial intelligence breakthrough, which has shifted global perceptions about China’s technological capabilities.
The gains come as foreign investors reassess China’s tech sector, with major companies such as Alibaba, Xiaomi, Baidu, and BYD leading the charge.
In contrast, US tech stocks have struggled, with the Nasdaq 100 rising just 4.4% over the same period, and the “Magnificent Seven” recording less than 0.5% gains on an equal-weighted basis.
“Only Chinese internet companies are globally competitive and comparable to the US Magnificent Seven,” said Bush Chu, investment manager for Chinese equities at Abrdn in a report by FT.
That improvement in sentiment has driven some flows back to China. We are starting to see some outperformance and a rally in China in recent weeks because of that.
Alibaba (HKG: 9988), Xiaomi (HKG: 1810), Baidu (HKG: 9888), and BYD lead the rally
Shares of Alibaba jumped more than 6% on Wednesday following reports that the e-commerce giant is working with Apple to introduce the iPhone maker’s AI features in China.
“While we’re almost all talking about DeepSeek and AI advancements coming out of China, other Chinese tech firms are coming out with some pretty amazing stuff,” Brian Tycangco, editor and analyst at Stansberry Research, said.
Other major winners in the AI-driven rally include Xiaomi, up 34%, Baidu, up 13%, and BYD, up 40% over the last month.
E-commerce platforms JD.com and Meituan have also benefited, rising 24% and 11%, respectively.
Their gains have been supported by strong consumption data from the Lunar New Year holiday and rising expectations of fiscal stimulus from Beijing later this year.
The broader Hang Seng index has climbed 15% over the past month, reflecting growing investor confidence in China’s economic outlook.
Mainland China’s CSI 300 index, however, has seen a more modest 4% gain, as concerns over tariffs, a struggling property market, and deflationary pressures continue to weigh on sentiment.
DeepSeek’s AI model reshapes investor sentiment
The market rally was sparked by DeepSeek, a Chinese AI developer that unveiled a large language model in late January, reportedly built with far less computing power than its US counterparts.
The news triggered a global debate over the necessity of large-scale AI investments and led to a sharp sell-off in US tech stocks, with Nvidia losing a record $589 billion in market value on January 27.
While the US market reacted negatively, Chinese tech stocks surged, particularly companies positioned to benefit from AI innovations.
Cloud computing firms, consumer electronics manufacturers, and search engine operators saw strong gains, reflecting investor optimism about AI-driven growth.
Stock Connect program data shows high interest among Chinese investors
Investor enthusiasm is reflected in the sharp increase in trading volumes through the Stock Connect program, which allows mainland Chinese investors to buy Hong Kong-listed stocks.
Data shows that average daily turnover in February was two-thirds higher than in January and three times higher than the same month last year.
Analysts said investors were boosted by the belief that Chinese development of LLMs was advancing and consumer-facing companies would rapidly adopt them.
Citi analysts wrote in a note on February 3 that AI investment in China remains underappreciated by global investors.
“The US is strong in terms of zero-to-one innovation, but China is stronger in terms of one-to-100 innovation, in terms of widening access and adoption of tech,” he said.
As China’s tech sector continues its rapid recovery, investors will be closely watching how AI adoption plays out and whether the momentum can be sustained in the face of geopolitical uncertainties.
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