The recent launch of DeepSeek, an open-source AI model that rivals OpenAI's o1 in performance but at significantly lower training and inference costs, has ignited a palpable excitement among global investors regarding Chinese technology companiesThis enthusiasm is reflected in the Hong Kong stock market, where the Hang Seng Technology Index has entered a "technical bull market." In the A-share market, the ChiNext Index, which includes numerous technology stocks, surged more than 3% by Friday's closing, nearly 7% for the week, following a period of consolidation that had seen it oscillate sideways since OctoberThis dramatic upswing is largely attributed to the fervor ignited by DeepSeek's entrance into the AI landscape.

As of its midday break, the Hang Seng Technology Index had gained 2.79%, marking over a 20% increase from its January lowKey contributors to this rally include tech giants such as Xiaomi, Lenovo, and Li AutoThe volatility of this index is noteworthy—having touched "technical bear market" territory just last monthDespite this recent rebound, the index remains more than 50% below its peak at the start of 2021.

In the Hong Kong markets, optimism about a "lasting bull market" runs even higher than in the A-share markets, fueled by supportive liquidity from the Federal Reserve's interest rate cuts and China's monetary stimuliThis has allowed Hong Kong to effectively capitalize on significant "dual liquidity benefits" from both China and the United StatesWith the AI investment frenzy spurred by DeepSeek, foreign investors are flocking to the Hong Kong markets as a key gateway for investing in China, with major Wall Street firms like Goldman Sachs, Morgan Stanley, and JPMorgan making their mark on Chinese companies.

The unprecedented "AI boom" sparked by DeepSeek's launch has helped mitigate concerns about the U.S. imposing a 10% tariff on Chinese importsTraders have observed that technology stocks within China's markets (including both Hong Kong and A-shares) have performed well under the conditions of lower-than-expected tariffs from the U.S., coupled with China's precise and targeted responses.

Drawing parallels with the U.S. stock market's "crazy bull market" of 2023, which was driven by the global fascination with AI following the rise of ChatGPT and Nvidia's staggering earnings, investors are wondering if a similar script is playing out in East Asia

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In 2023, the benchmark S&P 500 experienced a robust 25% surge, while the tech-heavy Nasdaq 100 soared by an astonishing 55%, largely driven by Wall Street investment banks and leveraged hedge fundsThe current momentum in the Hong Kong and A-share markets, boosted by China's liquidity support policies and fiscal stimuli, echoes this sentiment.

The Shanghai-Shenzhen 300 Index, considered by some as a counterpart to the U.SS&P 500 because it encompasses nearly all of China's core assets, alongside tools like the Hang Seng Technology Index, dubbed the "Eastern Nasdaq," is gaining attention as the performance of Chinese tech giants continues to grow.

Goldman Sachs has reaffirmed its bullish stance on the Chinese stock market in light of the DeepSeek shockwave disrupting American tech giantsThey project that under neutral expectations, the MSCI China Index could rise by 14% this year, with optimistic forecasts suggesting a staggering 28% increaseGoldman also highlighted the promising potential of stocks in the "soft tech" sector, indicating their performance could outpace the overall market.

As Alibaba and Tencent solidify their footprint in the realm of AI, characterized by robust models, powerful cloud AI computing systems, and a comprehensive developer platform for AI applications, the market might witness growth trends comparable to giants like Amazon AWS and MicrosoftThis could trigger an investment atmosphere similar to the influx of capital that North American cloud computing giants witnessed in 2023-2024.

The DeepSeek-led innovation in AI technology, focused on low costs and high efficiency, could create a trend of declining costs throughout the AI industry chainFor major tech corporations in China, including internet giants and consumer electronics firms, the rapid penetration of AI applications across various sectors is bound to generate significant market opportunities alongside an expansive demand for AI compute power.

If groundbreaking AI applications start emerging in large numbers by 2025, the platforms provided by cloud giants like Alibaba, Tencent, and JD.com will be put to excellent use, laying the groundwork for a booming ecosystem of AI software development and unparalleled cloud-based AI inference power

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With these cloud companies establishing themselves at the forefront of B-end and C-end AI application development, the barriers for non-IT professionals to create AI applications will significantly decrease.

According to Sat Duhra, a portfolio manager from Singapore's Janus Henderson Investors, "This is an industry that has long been overlooked, but like many other pure Chinese sectors, it has significant highlightsThe recent shock of DeepSeek's release serves as a reminder that domestic industrial policies like 'Made in China 2025' are pushing many sectors to world-class levels."

Deutsche Bank has declared that the valuation discount facing the Chinese market is set to vanish, heralding a potential "Sputnik moment" by 2025.

With the release of DeepSeek showcasing performance on par with o1, Chinese internet companies are poised to emerge as a new competitive threat in the U.SAI spaceDespite barriers in acquiring state-of-the-art chips from the West, DeepSeek has managed to maintain a significant edge in development costs, which has led to a staggering loss of market capitalization for Nvidia—over $50 billion evaporated in a single day.

Recently, the DeepSeek R1 model created by a team of Chinese engineers has topped the charts in the U.S., while also claiming first place in the Apple App Store's free app download rankings in both China and the U.S., even surpassing ChatGPT's downloads.

This team has demonstrated an ability to develop highly performant AI models at a fraction of the cost, achieving an impressive feat with under $6 million and using subpar H800 chips compared to Nvidia's H100. The cost of training models by competitors like Anthropic and OpenAI pales in comparison, sometimes exceeding $1 billion.

As this "DeepSeek low-cost storm" gains momentum, investors are becoming increasingly skeptical of the sustainability of the massive spending plans by U.S. tech giants in the AI sector, which often reach into the tens of billions

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This skepticism, coupled with the newfound operational efficiency of DeepSeek, has caused a significant backlash against the expensive and extravagant plans that many U.S. firms have adoptedConsequently, Nvidia's shares plummeted nearly 17% last week, marking one of the largest single-day losses in the history of the U.S. stock market.

Traders on Wall Street are embracing a bullish outlook on the Chinese stock market, forecasting that as the global competitiveness of Chinese tech firms becomes recognized, the prevalent "China discount" will ultimately dissipate, allowing indices to potentially breach previous historical highs.

Deutsche Bank analyst Peter Milliken's report on February 5 stated, "We believe that 2025 will be the year global investors realize China's surpassing competitiveness compared to othersIt will see the release of the world's first sixth-generation fighter jet and the budget-friendly yet high-performance DeepSeek AI model."

This report centers around the concept of a "Sputnik moment" for China, asserting that its technological innovations are creating a global recognition shiftNotably, Silicon Valley investor Marc Andreessen has likened the release of DeepSeek to a "Sputnik moment" for AI, asserting that the rise of Chinese technology is an undeniable reality.

This report contends that 2025 could be the year that investors reassess the Chinese stock marketFrom textiles and steel to electronics and the surging sectors of new energy vehicles, nuclear energy, high-speed rail, and Artificial Intelligence, Chinese enterprises are establishing formidable global competitiveness that may mitigate the existing valuation disparity in the Chinese stock market, potentially leading both the A-shares and Hong Kong stocks into a prolonged bull market.

Deutsche Bank anticipates that the Chinese stock market will experience a long-term bull market by 2025, positioning both Hong Kong and A-shares as focal points for global investors

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