Hong Kong stocks have resumed their world-beating rally on a stronger note, as more investors join the stock-buying stampede.
Market insiders say that the rally could have legs, and have called for a reassessment of the country’s leadership in technology.
The Hang Seng Index soared as much as 4 percent to its highest since early 2022 on Friday. The gauge closed at 23,477.9 points, above the all-time high seen in October last year, when a package of stimulus measures announced by Chinese mainland policymakers fueled a historic rally.
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Alibaba led the gains on better-than-expected results. Shares of the e-commerce giant jumped by 14.6 percent after it pledged to invest more aggressively in artificial intelligence in the next three years than it has done over past decades.
The Hang Seng Tech Index surged by 6.5 percent and the broader Hang Seng China Enterprises Index advanced by more than 4 percent.
Friday’s rally extended a stellar start to the year, as DeepSeek’s sudden rise to AI stardom triggered a wave of redefining the core assets of the world’s second-largest economy. The market is now considering the concept of China’s own Magnificent Seven or Terrific Ten, which would include the leading internet companies in China, as an alternative to the US Magnificent Seven.
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“The primary driver has been DeepSeek’s advancements in AI. DeepSeek’s prowess has served as a wake-up call for investors who underestimated China’s leadership and growth potential in technology, leading to a broader re-evaluation of the beaten-down sector,” said James Cook, investment director of emerging markets at the US-based asset manager Federated Hermes.
Describing DeepSeek as “a catalyst for investors to rethink China”, Cook noted that “hedge funds have been piling into Chinese equities at the fastest pace in months in almost entirely long buys”.
Chinese stocks saw a net inflow of $2 billion from overseas investors in January, reversing a net outflow of $1.3 billion in December, according to a cash flow tracker from the US-based Institute of International Finance.
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More investment banks are betting big on Chinese equities, suggesting that the rally may just be getting started.
Morgan Stanley lifted its year-end point target for the Hang Seng Index to 24,000 from 19,400, while Citibank revised the target upwards to 24,500, citing a broader-based tech rally as the driving force.
Goldman Sachs Research Chief China Equity Strategist Kinger Lau said the widespread adoption of AI in the coming decade is expected to boost the overall earnings of Chinese stocks by 2.5 percent annually.
Since ChatGPT burst onto the scene in November 2022, the US stock market has spiked by 50 percent, with the market cap of US tech shares increasing by $1.3 trillion, according to Goldman Sachs.
DeepSeek’s cost-effective AI models are highly likely to increase the potential for widespread AI adoption. “This would boost Chinese companies’ earnings per share as the new technologies cut costs, enhance productivity and spawn new revenue streams,” Cook explained.
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With the hardware bar significantly lowered to developing AI models, the Chinese technology industry is “embracing a new cycle of innovation,” said Huatai Securities.
Lau said he believed that the rally makes sense and further upside could be ahead.
“Since the start of the new year, Hong Kong is cheered up by good news. Our country’s push for new quality productive forces has seen explosive growth, making Hong Kong stocks outperform its global peers,” Legislative Council President Andrew Leung Kwan-yuen said in the LegCo spring luncheon on Friday.
