Tech rally has driven capital to re-allocate into China

By John Barbon

DeepSeek’s breakthrough in artificial intelligence has boosted investor sentiment around Chinese stocks, with a gauge of the country’s onshore as well as offshore shares soaring over 26% since its January low.

The surge in Chinese equities comes at a time when Indian stocks have been languishing in correction territory, with experts pointing to a rotation away from India into China.

China’s CSI300 had given negative returns for three straight years before logging strong gains last year, while Indian equities have seen secular growth for the past nine years, but returns in 2024 were much lower than the year before.

Chinese stocks, led by a tech rally, have been on a tear since the release of DeepSeek’s R1 model in January as it challenged the U.S.-led AI ecosystem, claiming superior performance at much lower costs than the more established AI players.

The Hang Seng Tech Index, which tracks the 30 biggest technology firms listed in Hong Kong hit its highest in nearly three years. Meanwhile, the MSCI China Index — up 26.5% so far from its January low — has gained nearly 18% this year, while the MSCI India index has lost over 7% year to date.

The re-allocation into China is driven by a stronger narrative on several fronts, mainly including the emergence of tech giants led by Alibaba which is absolutely the bellwether for AI.

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