In a shifting global financial landscape, foreign investments are performing a reassessment of their position in the Chinese marketA recent monthly survey by Bank of America revealed the impact of the burgeoning DeepSeek AI startup as a pivotal catalyst, improving the rationale for purchasing Chinese stocks, particularly those in the technology sectorThis renewed interest may indeed draw long-term investors back into the foldThe strategic shift from seeing Chinese equities merely as “tradeable” assets to viewing them as “investible” marks a significant transformation in the attitudes of investors and the direction of capital flows.
As of today, the A-share market witnessed a notable reboundThe ChiNext index surged by over 1%, leading the charge in both domestic marketsMore than 4,100 stocks across the Shanghai, Shenzhen, and Beijing markets were registering gains, resulting in a substantial transaction volume of 1.07 trillion yuan in just half a trading daySectors such as robotics, superconductors, semiconductor chips, and new energy vehicles dominated the gains in the A-share marketConversely, in Hong Kong, the Hang Seng Index dipped by 0.28%, while the Hang Seng Tech Index experienced an uptick of 0.37%.
Notably, the Hang Seng Index has accumulated a year-to-date increase of 14%, positioning it amongst the top-performing major markets globallyTech stocks are shining brightly, with the Hang Seng Tech Index registering a remarkable year-to-date gain of over 26%. This signifies a resurgence in the market that has captivated the attention of global investors.
Amidst this backdrop, an influx of capital is evident in Hong Kong’s tech stocksAccording to Wind data, on February 18, net purchases from southbound capital into Hong Kong stocks reached 22.423 billion Hong Kong dollars, marking the highest single-day purchase volume since the beginning of 2021. This trend signals a strong vote of confidence in the local tech industry.
Globally, stocks have emerged as the most favored asset category among investors, reflecting the strongest risk appetite observed in 15 years
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A separate analysis from Bank of America indicated that the level of cash held by fund managers has plummeted to its lowest since 2010. Michael Hartnett, a strategist at the bank, emphasized that investors are currently favoring a high exposure to stocks while holding minimal positions in other asset classes.
The shift in sentiment towards Chinese equities stems from a variety of favorable factors, with the rise of AI powering new opportunitiesBank of America highlighted that the outlook for these stocks is evolving from speculative trading to sustained investmentLarge foreign investors typically take their time, often spending months or even years in a watch-and-wait strategy, holding small short-term positionsHowever, significant indicators suggest a changing tide.
Hartnett’s report, based on a survey conducted from February 7 to 13 among fund managers overseeing a combined $401 billion in assets, showed that 18% of respondents predict the Hang Seng Index will outperform globally by 2025—a remarkable rise that places it alongside the NASDAQ in prominenceThis is the first time since it appeared in their monthly report last November that the Hang Seng has cracked the top three positions.
The confidence shown by global investors has surged towards the Hong Kong stock market, paralleling that of the NASDAQ Composite IndexReflecting on market performance, the Hang Seng index’s remarkable growth rate highlights its competitiveness compared to other established indicesNotably, technological stocks are outperforming the majority across all sectors.
Looking deeper into the ongoing sentiments, many investors had previously perceived China as a purely trading market, seeking quick profits amid fleeting correctionsHowever, encouragingly, the fundamentals supporting investment in China’s broader economy appear to be shifting positively
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Bank of America analysts mentioned several long-term beneficial factors, including rising dividends and the influx of insurance company investments.
Intriguingly, Wall Street analysts are focusing on what they term the “Ten Giants” of Chinese technologyThis group is even seen as a potential alternative to the "Seven Giants" of American tech, which comprises established leaders like Apple and GoogleJeff Weniger, who oversees equity strategy at WisdomTree Asset Management, remarked on social media that the Chinese tech ten could potentially overshadow their American counterparts, a trend that has quietly begun to gain traction over the past half-year.
The list referred to by Weniger includes e-commerce powerhouses Alibaba and JD.com, automotive manufacturers Geely and BYD, tech conglomerate Xiaomi, as well as internet giants Tencent, NetEase, Baidu, Meituan, alongside semiconductor leader SMIC.
In recent events, considerable capital from mainland China has been pouring into Hong Kong’s tech stocksOn February 18, data revealed net purchases amounted to a staggering 22.423 billion Hong Kong dollars, marking it the largest single-day influx since early 2021. Analysts attribute this surge to the bullish trend catalyzed by DeepSeek and its implications for tech share prices, with the Hang Seng Tech Index rising by 2.5% and poised for its sixth consecutive week of gains.
A closer inspection of stock activity reveals substantial net purchases among individual stocksNotable transactions included Alibaba with net buys of 3.391 billion Hong Kong dollars, Xiaomi with 600 million HKD, Tencent with 507 million HKD, and China Mobile with 389 million HKD in net purchasesThroughout the year, the ongoing embrace of tech stocks has pushed southbound capital’s total net purchases to a remarkable 185.385 billion HKD.
As significant capital influxes continue to make their mark in the Hong Kong market, the premium rate between A-shares and H-shares has narrowed down to around 34%. Investments from firms such as Goldman Sachs have indicated that the emergence of DeepSeek and other AI models is reshaping the narrative surrounding Chinese tech
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Improved growth prospects are projected to enhance the fair value of Chinese stocks by 15% to 20%, possibly inviting over 200 billion USD in investment inflows.
Yangtze Securities elaborated on the dynamic changes with the rise of AI, outlining that the Hong Kong stock market is transitioning from a “dividend bull” into an “AI bull” phaseOver the last three years, the valuations of tech and internet companies in Hong Kong have largely been influenced by the macroeconomic landscapeAs the AI sector evolves, companies with extensive AI applications and underlying technologies may experience a renaissance in their industry life cycle, transforming from value stocks back to growth stocksWhile the realization of performance gains might take time, the reconstruction of valuations has already commenced.
According to Bank of America’s survey findings, a significant majority indicates a preference for stocks over any other asset class, highlighting a pronounced risk-on sentimentThe cash levels among fund managers are reported to have dropped to their lowest since 2010, with 34% of respondents expecting global equities to emerge as 2025's standout asset.
Furthermore, expectations are shifting with 11% of respondents indicating they hold less exposure in bonds than necessaryHartnett remarked on this optimistic shift as investors favoring equities drastically over other investments, buoyed by resilient economic growth and a projected decline in US interest rates.
Signs of optimism also permeate across global markets, with equity valuations surging over 60% since the lows witnessed in late 2022 prompted by heightened enthusiasm regarding AI and averting the anticipated US recessionBank of America attributes this stock market surge predominantly to the American tech sector, although investors are becoming increasingly wary of betting solely on the so-called American exceptionalism narrative.
In the survey results, investors anticipate European indices, such as the Euro Stoxx 50, will outperform US equities, especially the tech-heavy NASDAQ 100 by 2025, with 22% believing the Euro Stoxx would become the best performer.
In conclusion, the data indicates that the overall bullish sentiment among investors, reflecting optimal cash balances, asset allocations, and growth expectations, has risen from 6.1 to 6.4 yet remains beneath the “bubble” threshold seen in December 2024. As we edge closer to the future, anticipated recession outlooks have diminished to a three-year low, with around 77% of fund managers envisioning continued interest rate reductions by the Federal Reserve into 2025.
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