In recent years, the landscape of global finance has been shifting dramatically, fueled by the rapid advancements in technology across various sectors. In particular, Chinese tech companies have emerged as a formidable force, showcasing remarkable growth and innovation, especially in the field of artificial intelligence. This has drawn the attention of foreign financial institutions, with many now redirecting their focus toward the burgeoning Chinese market. With endorsements from prominent entities like Goldman Sachs, Deutsche Bank, HSBC, and Bank of America, the consensus among these institutions reflects a strong optimism regarding the development of China's technology industry.
Goldman Sachs, in its latest research publication, highlighted a pivotal juncture for Chinese tech stocks, particularly with the rise of DeepSeek, a company synonymous with innovation in AI. They posited that this growth presents an opportunity for a revaluation of Chinese technology stocks. The firm has maintained an "overweight" rating on the MSCI China Index, projecting a potential 14% increase this year. Such bold predictions are often indicative of the significant impact technological advancements may have on market behavior and investor confidence.
Similarly, Deutsche Bank expressed a favorable outlook for the Chinese market, asserting that global investors are beginning to recognize the competitive advantages of China's manufacturing and services sectors. Their report emphasized the transformative potential of disruptive innovations emerging from China, which could lead to the diminishment of valuation discounts for Chinese equities. This perspective underlines a broader trend in which foreign investors seek to capitalize on China's advancing technological capabilities.
The Chief Investment Officer for HSBC Global Private Banking and Wealth Management in China, Kuang Zheng, elaborated on the implications of the strides made by DeepSeek. He noted that the company's significant technological breakthroughs are a testament to the maturity of Chinese large language models, which are now entering a stage of deep reasoning. This evolution catches the eye of investors, signaling an escalation in global competitiveness for Chinese tech innovation. The success of companies like DeepSeek may serve as a catalyst for promoting technological innovation within private enterprises in China, further enhancing investor sentiment toward the Chinese stock market.
The introduction of the open-source model DeepSeek-R1 has ignited a renewed interest among global investors, prompting them to reassess the technological prowess of Chinese assets. The strategic team at Huatai Securities noted that DeepSeek's characteristics of low-cost and high performance have sparked discussions about capital expenditure and various application scenarios, potentially leading to a reevaluation of the technology potential held by Chinese firms.
Importantly, foreign investment is not merely optimistic but also proactive. According to data released by Goldman Sachs, as of February 7, the Chinese onshore and offshore stock markets recorded the highest nominal net inflows this year, indicating a robust interest from major brokers worldwide. During a critical week from February 3 to February 7, hedge funds demonstrated the strongest buying power in Chinese stocks observed in over four months. Additionally, Taosha Wang, a portfolio manager at Fidelity, has publicly stated that Fidelity International has increased its holdings in Chinese equities, underscoring the growing confidence among foreign investors.
Furthermore, there is a palpable enthusiasm among international institutions to research A-share technology companies. Throughout this year, major financial entities such as Goldman Sachs, Deutsche Bank, UBS, JPMorgan, Fidelity International, and Morgan Stanley have frequently engaged in research activities related to A-share listed companies, showing a keen interest in emerging industries such as artificial intelligence, new energy, advanced manufacturing, and healthcare.
This marked interest from foreign institutions is grounded in a solid logical foundation. A notable factor contributing to this optimism is the apparent valuation advantage of Chinese assets. According to Wang Xiaojing, the Director of Quantitative and Multi-Asset Investments at BlackRock, Chinese stocks are still regarded as undervalued in the global market. Should there be a consistent rollout of supported incremental policies this year, it could further bolster overseas investors’ confidence in China's economic transition, thereby accelerating the return of foreign capital to the Chinese market.
Moreover, the series of supportive policies aimed at capital markets and technological innovation has significantly reinforced foreign financial institutions' confidence in China's market prospects. In 2024, various policy frameworks, including the "Sixteen Technology Measures," "Eight Innovation Board Provisions," and "Six Merger Guidelines," have been executed to promote the innovative development of technology enterprises. An array of "hard tech" companies tackling critical core technology challenges has successfully navigated their path to the A-share market, achieving breakthroughs and rapid advancements. To date, over 90% of the companies listed on the Science and Technology Innovation Board (STAR Market), the Growth Enterprise Market, and the Beijing Stock Exchange are high-tech enterprises, with over half of the listed companies in the strategic emerging industries.
In a bid to maximize the efficiency of capital markets and support the development of new productivity methodologies, recently issued implementation opinions have aimed at pooling resources toward significant areas such as technological innovation, advanced manufacturing, green low-carbon initiatives, and inclusive living standards. Yang Chao, the Chief Strategy Analyst at China Galaxy Securities, noted that these implementation opinions demand enhanced financial services for technology enterprises covering the entire lifecycle and chain of service. This highlights the supportive approach from policy levels towards technological innovation, which can enhance the technological content and international competitiveness of the A-share market.
The progress made by China in fostering innovation over the past decade, particularly in digital communication, computer technology, semiconductors, medical technology, and new energy batteries, has been substantial. Kuang Zheng remarked that the success of Chinese firms in artificial intelligence may trigger further groundbreaking advancements in technology, prompting a reevaluation of China’s innovative capacity on a global scale.
Experts predict that as China's economy continues to steadily recover, paired with accelerating development in new forms of productivity, the capital market is set to empower technology enterprises further. With the acceleration in implementing existing policies and the introduction of a package of new initiatives, the innovation potential within the Chinese technology sector is expected to be unleashed more rapidly. The reinforcing strength of technological capabilities is becoming increasingly evident, and a growing consensus among foreign financial institutions is that prioritizing Chinese assets will be imperative.