Chinese Tech Stocks Set for Further Growth

Chinese A-shares have shown strong performance, marking a robust rally for the second consecutive session on Friday. This trend suggests a promising uptrend in the market, as investors are taking a fresh look at Chinese stocks following recent advancements in the country’s artificial intelligence (AI) sector, which have caught market observers by surprise, according to analysts.

One significant development is the rise of DeepSeek, a private Chinese AI startup. This breakthrough not only reaffirmed China's innovative capabilities in AI but might also encourage global investors to better appreciate China's competitive advantages across various industries. Analysts speculate that this recognition could propel the A-share market to surpass previous highs in the medium term.

On Friday, the Shanghai Composite Index climbed by 1.01 percent, closing at 3303.67 points—its first close above 3,300 this year—after a 1.27 percent increase the previous day. The ChiNext Index, which tracks growth enterprises similar to the U.S. Nasdaq, jumped 2.53 percent to finish at 2174.35 points, following a 2.8 percent rise on Thursday.

As reported by market tracker Wind Info, total market turnover reached 2 trillion yuan (approximately $274.43 billion) on Friday, marking the highest level in over a month. DeepSeek's success spurred gains in various sectors, including smart vehicles, computer hardware, software, and the internet.

David Chao, a global market strategist for Asia-Pacific at Invesco, noted, "Investors are beginning to realize that this relatively unknown Chinese AI company has achieved performance levels comparable to leading U.S. AI firms. Furthermore, Chinese equities—especially in technology—are significantly undervalued compared to their American counterparts. Just as the gap in AI development is closing, the valuation gap is also reducing."

The broader implications of this development highlight that Chinese tech firms continue to innovate, particularly in software, despite facing U.S. export restrictions on hardware. This was reinforced by China’s recent commitment to boost technological innovation, as the China Securities Regulatory Commission outlined new guidelines to support high-quality science and technology companies seeking to go public.

The initiative aims to enhance support for strategic sectors such as next-generation information technology, AI, aerospace, new energy, new materials, high-end equipment, biomedicine, and quantum science technology.

Invesco isn't the only foreign investment firm predicting an increase in the valuations of Chinese tech stocks. Peter Milliken from Deutsche Bank stated that the technological achievements of China have been undervalued by investors, but this trend is changing. He remarked that it is becoming "impossible to ignore" China's superior performance in manufacturing and progressively in services.

Milliken believes that a bull market for both H-shares and A-shares will commence in 2024, with expectations to surpass previous highs within the medium term. The A-share benchmark hit a high of 3674.4 points in October, nearly the highest mark it has reached in three years.

Yang Delong, chief economist at First Seafront Fund, predicted that the A-share market might continue its bullish tendency, surprising many investors. He suggested that as macroeconomic adjustments become more pronounced, household savings could shift from the property market to equities. "Once the market showcases a profit-making effect, a positive cycle will emerge, fostering higher stock prices that, in turn, attract more investors," he explained. He added that anticipating the SCI to reach around 4,000 points this year is not overly ambitious, especially given the prospects in sectors like humanoid robotics and new energy.

However, new tariffs imposed by the U.S. on Chinese imports could create risk aversion among investors, potentially putting pressure on A-shares, according to a report by CGS International.

China, AI, Stocks, Market