Alibaba and Tencent Soar to Three-Year Highs. Does DeepSeek Usher in a Bull Market in Hong Kong Stocks? | Krypton Finance
Author | Wang Hanyu
Editor | Zheng Huaizhou
During the Spring Festival, DeepSeek emerged suddenly, igniting the market sentiment. After the festival, the A - share and Hong Kong - stock markets successively welcomed a "good start". In the whole of February, the Hang Seng Index in the Hong Kong - stock market led the world. All three major A - share indexes were in the green. The Shanghai Composite Index, the Shenzhen Component Index, and the ChiNext Index rose by 2.16%, 4.48%, and 5.16% respectively.
From the official release of the DeepSeek - R1 model by DeepSeek on January 20th to March 5th, the Hang Seng Tech Index has risen by more than 28.5%, and the Hang Seng Index has also risen by 20.5%.
During this period, many domestic Internet technology companies announced that their applications would access the DeepSeek model. Leading technology stocks in the Hong Kong - stock market all rose. Alibaba rose by more than 60%, and Tencent Holdings rose by more than 33%. The stock prices of both companies soared to their highest levels in nearly three years. In addition, Kuaishou rose by more than 28%, and Bilibili rose by more than 24%.
Meanwhile, foreign investment institutions such as Deutsche Bank, Goldman Sachs, and Morgan Stanley have all sung praises for Chinese assets. Goldman Sachs maintained its "overweight" rating for A - shares and Hong Kong - stocks. A research report from Morgan Stanley said that "global investors are now re - evaluating the investability of China in the technology and AI fields".
A research report from Deutsche Bank compared the launch of DeepSeek to "China's 'Sputnik moment'", believing that global investors will re - recognize the competitiveness of Chinese enterprises. It is expected that the valuation discount of Chinese stocks will be repaired this year. The bull market in A - shares/Hong Kong - stocks will continue and exceed the previous high in the middle of this year.
Why has DeepSeek made foreign investment institutions look at Chinese assets differently? Is the rise of the major A - share/Hong Kong - stock indexes since the Spring Festival an over - reaction? And how long can the market trend driven by DeepSeek last?
Are foreign investors coming back?
Recently, institutions such as Morgan Stanley, UBS, GIC, Citigroup, HSBC Investment, Deutsche Bank, and BNP Paribas have frequently appeared on the research lists of A - share listed companies.
Before that, the research views of foreign investment institutions sent out signals first.
On February 5th, Deutsche Bank released an enthusiastic research report - "China Eats the World: China's, Not AI's Sputnik Moment", which detailed China's huge and capable industrial advantages. It believed that the release of DeepSeek marked that China's advantages in high - value - added fields and its leading position in the supply chain were expanding at an unprecedented speed, and predicted that the "valuation discount" of Chinese enterprises would disappear, and the profitability of enterprises might unexpectedly rise in the cycle. "We believe that the bull market in H - shares/A - shares started in 2024 and will exceed the previous high in the medium term."
On February 19th, Morgan Stanley released "Deepseek Ignites the Market, Global Investors Re - evaluate the Value of Chinese Technology Stocks", pointing out that global investors have long had limited attention to China's technology and AI fields. Now, global investors are starting to re - evaluate the investability of China in the technology and AI fields. Moreover, this change in mentality may be more sticky than previous market rebounds, and will drive more fundamental investments.
On February 23rd, Goldman Sachs proposed in a research report titled "It's Time to Implement Plan A" that supported by valuation advantages and policy expectations, A - shares are expected to catch up and rebound in the next three months, outperforming the Hong Kong - stock market, with an expected excess return of 2%.
Undoubtedly, the release of DeepSeek is the main reason for this round of foreign investment institutions' collective praise for Chinese assets.
So, how does DeepSeek change the valuation logic of foreign investment institutions towards Chinese assets? In other words, from which aspects can DeepSeek enhance the competitiveness of Chinese enterprises?
Du Houliang, the fund manager of China - Europe Information Technology Fund, analyzed to 36Kr that when an industry is developing, there are two essential logics for pricing: How large is the future market space of this industry? Is the possibility of its explosion continuously increasing?
"The emergence of DeepSeek has increased the possibility of this industry's explosion. DeepSeek accumulated more than 30 million daily active users in about a month. This explosion slope is what investors like. Overseas, the AI industry has always been defined as an industry that will change the next decade or even decades. China has also gradually reached this understanding. The investment enthusiasm has strong sustainability." Du Houliang said.
Specifically regarding the transformation of the industry and enterprises, Yao Wei, the fund manager of China Overseas Shanghai - Hong Kong - Shenzhen Fund, further analyzed that DeepSeek will enhance the competitiveness of Chinese enterprises in five aspects.
Firstly, in terms of technological innovation and breakthroughs, DeepSeek uses an advanced neural network architecture and multi - modal AI functions, and performs excellently in natural language processing and color image generation. It provides more efficient creation tools for developers and content creators. This technological innovation not only enhances the R & D capabilities of enterprises but also promotes the technological progress of the entire industry.
Secondly, in terms of open - source and sharing, DeepSeek open - sourced its core model DeepSeek - R1 and adopted the MIT license agreement. It allows any individual or enterprise to deploy, modify, and even use it commercially for free. This open - source strategy lowers the threshold for using AI technology, promotes the popularization and application of technology, and also provides more innovation opportunities for enterprises.
Thirdly, DeepSeek found a more efficient training method through algorithm innovation, significantly lowering the threshold for computing power. This enables more small and medium - sized enterprises and developers to participate in the AI field, accelerating the popularization and application of AI technology.
Fourthly, it has expanded application scenarios. DeepSeek is widely used in many fields such as game development, video production, and social media content creation. As its application expands to more fields such as finance, healthcare, and education, it will further promote the digital transformation and intelligent upgrading of these industries.
Fifthly, in terms of international competitiveness, the success of DeepSeek has broken the monopoly of a few overseas giants in the global AI large - model field, winning more voice for China in global technological competition. This not only enhances the international image of Chinese enterprises but also wins more cooperation opportunities for them in the international market.
When talking about the enterprises that may benefit first, Yao Wei believes that cloud computing and computing - power service providers, AI application and tool developers, hardware and solution providers, and companies engaged in ecological services and traffic operations are expected to see an increase in orders, an improvement in performance, or monetization opportunities.
For example, the training and inference of the DeepSeek model rely on high - performance computing power. As some domestic social APPs and other ecosystems access it and the AI interaction scenarios increase, the demand for computing power will surge. These companies have adapted to the DeepSeek model and provide GPU computing - power services, and are expected to see an increase in orders and an improvement in performance.
Du Houliang divided the entire industrial chain into four parts in his investment and research: overseas computing power, domestic computing power, the application side, and the terminal side.
Driven by both training and inference, the demand for chips is increasing, whether it is domestic or overseas computing power. Overseas, the ASIC chips and supporting industrial chains can be focused on. In China, the production - capacity gap brings layout opportunities for domestic substitution links with a high slope, such as inference chips and storage solutions.
On the application side, vertical scenarios may explode first. For example, the combination of open - source models and vertical data enables more and more enterprises to quickly deploy large models at a low cost, thereby achieving significant cost reduction and efficiency improvement in enterprise operation and management. Scenarios such as education, entertainment, and personal assistants at the consumer end are also expected to explode.
In contrast, Du Houliang believes that the explosion at the terminal side still needs to wait for the 'critical point'. If technological breakthroughs can be achieved in 2025, with the maturity of multi - modality, the penetration rate of AI glasses and in - vehicle assistants in complex scenarios is expected to increase.
He said, "In the long run, AI investment needs to consider the iteration of software and hardware cycles. The investment period may be relatively long and requires a relatively high degree of professionalism."
The enthusiasm for Hong Kong - stocks is not excessive, and the valuation is still at a low level
Compared with the "slow - starting" A - shares, the Hong Kong - stock market, which has gathered a large number of technology stocks, can be regarded as a "hot favorite". In the first month after the Spring Festival, it has led the world in weekly and monthly gains several times. In February, the Hang Seng Index in the Hong Kong - stock market rose by 13.4%, the Hang Seng China Enterprises Index rose by 14.02%, and the Hang Seng Tech Index soared by 17.88%.
Against the background of the weakness of many global markets, during the same period, the Dow Jones Industrial Average, the Nasdaq Composite Index, and the S&P 500 Index in the US stock market fell by 1.6%, 4%, and 1.4% respectively. The UK's FTSE 100 rose by 1.88%, and the Nikkei 225 Index fell by 5.97%.
Against the background of the turmoil in many global markets, is this performance of the Hong Kong - stock market an over - reaction or a reasonable one?
Luo Jiaming, the fund manager of China - Europe Fengtai Hong Kong - Stock Connect Fund, believes that the main driving force for this round of rise in the Hong Kong - stock market comes from the technology sector. Since the beginning of this year, the wave of technological innovation represented by DeepSeek technology has greatly promoted the profound transformation of China's technology field, which is the core reason for the rise of the Hong Kong - stock market.
He mentioned that technology stocks account for a large proportion in the Hong Kong - stock market, especially in the Internet, software, and electronics industries. In the past, the valuations of these companies were relatively low globally. The valuation of the Internet sector was even far behind that of similar US companies. Once, the market generally believed that the US was far ahead of China in the technology field. However, with the sudden emergence of the Deepseek AI large - model, the market began to re - examine the actual gap between China and the US in technology and found that it was not as large as imagined. Therefore, the valuation repair of technology stocks has become the core logic for this round of rise in the Hong Kong - stock market.
Yao Wei also mentioned that the sudden emergence of DeepSeek represents a major breakthrough in China's AI technology field. Its characteristics of low cost, high performance, and open - source have broken the long - standing computing - power path dependence in the global AI industry. This technological breakthrough has enhanced investors' confidence in the future development of Chinese technology enterprises. Some overseas funds may be willing to re - layout the Chinese stock market, especially in fields where there have been breakthroughs in cutting - edge technology development, including AI software and hardware, robots, smart cars, and low - altitude economy. This change in capital flow has brought incremental funds to the market, driving up stock prices.
"Overall, we believe that the reaction of the stock market has a certain logical rationality. After a period of rise, the valuations of some individual stocks have been largely repaired. But in terms of the overall valuation, the current overall market valuation is comparable to the historical average level. We believe that it is not an over - reaction." Yao Wei said.
After the market rally on September 24th last year, although the A - share and related Chinese asset indexes have experienced a significant rise, in terms of valuation, they are still at a low level.
According to Wind data, as of March 5th, 2025, the price - to - earnings ratio of the Shanghai Composite Index is 14.37 times, and the price - to - book ratio is at the 29.35% percentile in the past decade. The price - to - earnings ratio of the CSI A500 Index, which represents China's core assets, is 14.54 times, and the price - to - book ratio is at the 18.98% percentile in the past decade. It can be seen that the overall valuation level of Chinese assets is still in a low range.
How long can the DeepSeek market trend last?
Currently, the Hong Kong - stock market is entering the earnings - report season. One month later, the A - share market will also enter the intensive annual - report disclosure season. Although Alibaba's earnings released in February exceeded market expectations, overall, the data released by the National Bureau of Statistics has indicated that this year's annual - report season may not bring many surprises.
At the beginning of this year, the statistics from the National Bureau of Statistics showed that in 2024, the total profits of industrial enterprises above the designated size in China reached 7,431.05 billion yuan, a decrease of 3.3% compared with the previous year (calculated on a comparable basis). Among industrial enterprises above the designated size in 2024, state - owned holding enterprises achieved a total profit of 2,139.73 billion yuan, a decrease of 4.6% compared with the previous year; joint - stock enterprises achieved a total profit of 5,616.64 billion yuan, a decrease of 3.6%; foreign - invested enterprises and enterprises invested by investors from Hong Kong, Macao, and Taiwan achieved a total profit of 1,763.79 billion yuan, a decrease of 1.7%; private enterprises achieved a total profit of 2,324.58 billion yuan, an increase of 0.5%.
Therefore, will the booming DeepSeek market trend stop with the release of solid corporate profits?
Yao Wei believes that how long the market trend driven by DeepSeek can last depends on the short - term change in valuation and the possibility of exceeding expectations in the future fundamentals. At present, the valuation is still at a reasonable level, and the market still has room to rise.
When talking about his allocation strategy for the Hong Kong - stock market, Yao Wei said that he will continue to focus on the related targets of the Hang Seng Tech Index. In terms of sub - industries, he will continue to focus on the related targets of AI and large models, including AI chips and computing - power service providers; for AI application enterprises, he will mainly focus on mobile phones, glasses, cars, and robots; for the software and service end, he will focus on fields such as education, healthcare, advertising and marketing, e - commerce, law, and games.
Luo Jiaming also pointed out to 36Kr that in terms of the investment cost - effectiveness of A - shares and Hong Kong - stocks, there are investment opportunities in both. The core logic of the equity market this year lies in the valuation repair of Chinese assets.
Due to the large decline in the Hong Kong - stock market in the past few years, its current valuation level is relatively lower. Moreover, some technology - industry companies in the Hong Kong - stock market have benefited from the rising dividends of the AI sector. The A - share technology sector has also performed well recently, but its overall valuation is slightly higher than that of the Hong Kong - stock market. In contrast, the Hong Kong - stock market has a lower valuation starting point, and the future repair space may be more considerable.
Regarding the investment strategy and allocation logic for the Hong Kong - stock market, Luo Jiaming said that his core idea is to screen out high - quality enterprises with strong free - cash - flow creation capabilities. The main allocation directions are divided into three parts: Firstly, to layout some upstream resource products, especially non - ferrous metals.
Non - ferrous metals, such as copper and aluminum, are not only indispensable basic materials for technological development but also reflect the value relationship between currency and resources. As the world gradually shows a trend of breaking away from the US - dollar system and the resource supply is limited, the prices of non - ferrous metals have shown strong resilience, and the leading enterprises in this sector have become the key focus.
Secondly, he will continue to allocate the related targets of Chinese companies going global. As the technology industry is the main investment line this year, Luo Jiaming said that he has also laid out some Internet and electronics industry companies.
"Overall, the industry distribution of the holdings is relatively balanced. More attention is paid to the free cash flow and valuation level of enterprises, rather than a pure growth - style allocation."
Looking at the Hong Kong - stock market in the first half of this year, Yao Wei believes that the Hong Kong - stock market will show an upward trend.
On the one hand, this comes from domestic policy support, especially the support policies in the consumption and technology fields; on the other hand, it benefits from the economic recovery. There are signs of economic improvement in China, and