Domestic AI Savvy Boosts Markets

Chinese technology shares experienced a significant uptick on the first trading day after the Spring Festival holiday, highlighting a resurgence in investor confidence, even in the face of recent tariff increases from the United States. This surge can be attributed to advancements in homegrown artificial intelligence models, as analysts have noted.

The STAR 50 Index, which monitors Shanghai's sci-tech innovation board, climbed by 2.9 percent, reaching a close of 982.83 points on Wednesday. Similarly, the BSE 50, which tracks innovative small and medium-sized enterprises on the Beijing Stock Exchange, increased by 1.17 percent to close at 1070.38 points.

The rally was significantly driven by companies that have partnered with DeepSeek, a private Chinese startup, which gained attention for its cost-effective large language models in AI. These companies stand to benefit greatly from the growing application of artificial intelligence.

Beijing Paratera Tech Corp Ltd, which provides computing power and is listed in Beijing, reached the maximum daily price increase limit of 30 percent, ending at 98.16 yuan ($13.50) per share, marking the highest price since late October. The boom in AI capabilities is expected to drive market demand for computing power significantly.

Also, Shanghai-listed Beijing Kingsoft Office Software Inc saw a remarkable jump of 18.19 percent to 371.11 yuan amid investor speculation regarding its potential integration of DeepSeek's AI models.

Overall, on that Wednesday, 3,429 A shares recorded gains while 1,847 concluded lower, despite the imposition of a 10 percent additional tariff on imports from China as of February 1.

Zhang Jun, the chief economist at CGS International, commented, "While the U.S. has put new tariffs on China, the markets are focusing more on China's advancements in technology and culture. This reflects a stronger confidence in China's future. Events that unfolded during the Spring Festival, such as the impact of DeepSeek, support this outlook. China's consumer and manufacturing sectors are accelerating the globalization of supply chains. Resilient companies are successfully navigating changes brought by U.S. tariffs, and market sensitivity appears to be decreasing."">

The positive market movements align with a notable increase in offshore Chinese tech stocks this past Spring Festival holiday, where the Hang Seng Tech Index rose by 6.19 percent. In contrast, U.S. tech giants showed volatility, with Nvidia closing at $118.65, a drop of approximately 20 percent from its peak in late January.

A report from Huatai Securities indicated that DeepSeek's efficient and high-performance models could prompt investors to reevaluate the technological prospects of Chinese tech firms in the AI space, potentially leading to a reassessment of both Chinese and U.S. tech stocks.

On a different note, the benchmark Shanghai Composite Index declined by 0.65 percent to conclude at 3229.49 points, while the CSI 300 Index fell by 0.58 percent to 3795.08 points.

Goldman Sachs recently predicted that MSCI China and CSI 300 index values could rise by about 20 percent by the end of 2025, with a target for the CSI 300 Index set at 4600 points.

Despite a challenging start to the year, Goldman Sachs emphasized a compelling balance of risk and reward. They noted an anticipated earnings-per-share growth of between 7 to 10 percent, moderate valuation upsides, and low investor positioning, supporting their recommendation for a favorable outlook on both A-share and H-share markets.

Looking ahead, Zhang anticipates that the A-share market may experience upward fluctuations as its current valuation approaches historical averages. The trajectory of China's economic fundamentals and A-share earnings will heavily rely on the direction and intensity of domestic policy measures over the medium to long term.

AI, Markets, Investing