In recent weeks, there has been a remarkable surge in the valuation of technology stocks and overall Chinese assets, driven primarily by the enthusiasm sparked by DeepSeek—an AI technology firmThis wave of excitement particularly benefited the Hang Seng Index, with notable increases observed in the stock prices of Alibaba and Tencent as they announced major advancements in their collaborations with AI technologiesOn February 14, the Hang Seng Index soared by a staggering 3.69%, while the Hang Seng Tech index jumped by 5.56%. Individual stocks experienced significant gains as well, with Alibaba Health surging by 29% and Bilibili climbing 15%. Major players such as JD.com, Tencent, and Xiaomi also recorded increases exceeding 7%, alongside Meituan and Alibaba, which rose over 6% during the same period.

Among these stocks, Alibaba’s partnership with Apple to develop AI functionalities for iPhone users led to heightened interest in the entire technology chain associated with AI, including AI chips, consumer electronics, and cloud computingThis excitement around Alibaba's prospects witnessed its stock price climbing by an impressive 24.1% within just a weekBy February 17, Tencent reported a 3.96% rise in its stock price, reaching HKD 493.6, while many of its associated firms, including Weimob Group and Yixin Group, rallied notably—growing by 11.54% and 3.70%, respectively.

Since 2025, the Hang Seng Tech Index has skyrocketed by over 23%, outperforming major global market indices and attaining its highest point since February 2022. Meanwhile, the Hang Seng Index itself has surged by 12.74%, approaching its high from October 2024. The stock market buzz is palpable, with those who missed the wave expressing regret, while others bask in the rewards of their investments, feeling a resurgence in hopeMany are urging to buy Alibaba, stating, "I want my three-year-held stocks to break even sooner.” Back in October 2020, Alibaba’s stocks hit a high of HKD 306.83 and then plummeted to a low of HKD 57.65 in October 2022, illustrating the volatility yet potential within the market.

The relentless news around AI advancements from Alibaba and Tencent drives excitement through the investment community

Advertisements

DeepSeek's partnership with these tech giants has prompted many investors to re-evaluate their strategiesThe shifting narratives around AI have led foreign funds, particularly those from southern markets, to increase their stake in what is seen as a "value pit" in Hong Kong stocksThe rapid evolution towards a tech-driven bull market is evident, especially since the mid-January low where the Hang Seng Index has surged over 16% and the Hang Seng Tech Index over 28%.

On February 13, Alibaba’s Chairman, Cai Chongxin, confirmed the collaboration with Apple to develop AI functionalities specifically for the Chinese marketThe announcement was met with great enthusiasm from the market, particularly since Alibaba is expected to release its next quarterly report on February 20. As of February 14, Alibaba's stocks had risen by 50.61% this year alone, pushing its market capitalization beyond HKD 2.36 trillion, making it one of the principal beneficiaries of the current market rallyA report from JPMorgan noted that advancements in artificial intelligence are poised to create significant value within China's technology sector, thereby explaining the investor optimism surrounding this partnership.

In a parallel development, Tencent’s AI assistant "Yuanbao" has confirmed its integration with DeepSeek-R1. The WeChat search feature, after confirmation, has moved into the grayscale testing phase utilizing DeepSeek-R1's capabilitiesUsers who are part of this testing will see the "AI Search" label upon accessing the chat interface, offering them complimentary use of DeepSeek-R1’s robust model—greatly enhancing their search experienceThe application's daily active users (DAU) surpassed 30 million as of February 1, and in the week following its launch, it gained a record-breaking increase of 100 million users, demonstrating its rapid acceptance and popularity within the industry.

According to research from CITIC Securities, DeepSeek has drastically reduced model training costs through algorithm optimization

Advertisements

Should Tencent adopt these methods on a larger scale, it may alleviate concerns regarding the efficiency of its AI investmentsAs per UBS’s research head for the Chinese internet sector, Feng Jinchong, there is a short-term risk of a market correction following this AI-driven surge; however, it is anticipated that the internet sector still holds potential for upward movement, with current valuations remaining modestThe industry is valued at an average of 14 times P/E ratio, with earnings per share projected to grow by 15% from 2024 to 2026, which does not yet reflect potential government macroeconomic stimulus measures or significant gains from productivity increases triggered by AI.

Moreover, the upcoming fourth-quarter performance reports are expected to be broadly positive, as leading internet firms including Alibaba, Baidu, NetEase, and Bilibili are set to release their financial results from February 18 to 21. The anticipation surrounding these results could serve as a catalyst for further market activity.

Following the recent rally, attention is drawn to the main driving forces behind this uptickIn the two weeks post-Chinese New Year, the rapid increase of the Hang Seng in contrast to the A-shares begs the question of who the primary buyers are in this rallyObservations reveal that the current rebound is heavily tied to the AI boom instigated by DeepSeek, with investor sentiment and macro narratives undergoing significant shifts.

The research department at CICC acknowledged the similarities to the previous "9·24" surge, where emotional driving and transactional capital led the marketHowever, this time, the focus is sharper on the tech sector centered around AI, demonstrating a more pronounced structural dynamic that highlights the lagging state of financial cycle sectors within Hong Kong stocks compared to A-shares.

Regarding the inflow dynamics during the current rally, CICC pointed out that the most active participants are southern capital, passive funds, and trading-type capital, while long-term foreign funds appear to be retreating

Advertisements

Although southern funds have accumulated a significant inflow of HKD 26.6 billion since the holiday, it’s critical to note that this cumulative figure mirrors the scale seen during the last "9·24" market upheavalIn contrast, long-term foreign capital has been distinctly cautious, affirming its non-dominant position during this uptickMoreover, there has been an accelerated inflow of passive ETF funds, mostly steered by individual investors, tallying approximately USD 1.94 billion, yet still lagging significantly behind the USD 9.75 billion captured during the previous surge.

When compared to A-shares, the Hong Kong market is notably more sensitive to international shifts and significantly influenced by the political and economic intricacies of both Mainland China and Hong KongLooking towards future upward potential for Hong Kong stocks, static calculations suggest a reasonable target for the Hang Seng Index at around 23,000 pointsIf sentiment for tech stocks rebounds to the peaks seen in 2021, there is potential to witness levels reaching 25,000 pointsStrategist Yan Zhaojun from Zhongtai International highlighted the current policy and economic data vacuum in Hong Kong, which presents a window for foreign capital and hedge funds that are increasing allocations to Chinese enterprises improving operational efficiency through AI advancementsAdditionally, with diminishing external pressures from U.S. policies, a breathing room is generated for Hong Kong stocks.

From February 10 to 14, trading volumes in Hong Kong have been on the rise alongside a strengthening RMB and a rebound in the yields of China’s 10-year government bondsInvestors are betting on a recovery of Chinese assetsHowever, it is essential to note that the recent rally in Hong Kong stocks is not solely driven by general market trends; sector performance has exhibited notable disparitiesUnder baseline assumptions, it is estimated that the Hang Seng Index will witness a 5% growth in profits by 2025, introducing a risk premium of 7.5%, ultimately suggesting a target price of 20,300 points for year-end 2025. In a most optimistic scenario, if direct subsidies bolster local government and resident incomes, thus stabilizing the real estate market and stimulating inflation, we may observe the Hang Seng Index potentially reaching 23,500 points within the timeframe of 2025.

Advertisements

Advertisements