Hang Seng’s AI Renaissance: The DeepSeek Breakthrough (Q1 2025)
- peachgardenpartner
- Feb 21
- 4 min read
Updated: Mar 2
By Danila Zagoruiko
Executive Summary
The Hang Seng Index (HSI) has surged 15.81% over the past month, fuelled by a rally in Chinese tech stocks. A major catalyst behind this surge is DeepSeek, a Chinese AI start-up developing models competitive with OpenAI's GPT-4 at a significantly lower cost.
The Hang Seng Tech Index (HSTI), which includes Alibaba, Tencent, BYD, Xiaomi, and Lenovo, has climbed 25% in a single month, outperforming U.S. tech peers.
Investor confidence in China’s AI and semiconductor industries has strengthened, attracting capital flows into Hong Kong’s equity market.
Chinese chipmakers, such as Huawei and SMIC, have also received a boost as DeepSeek’s AI models provide a competitive advantage over U.S. firms like Nvidia.
Global AI dominance is shifting, with China’s AI and semiconductor technology advances driving speculative investment.
The rally signals renewed optimism in Hong Kong’s stock market, but given ongoing geopolitical risks and economic headwinds in China, the question of stability remains open.
Macro Overview
Key Indicators at a Glance
Indicator | Latest Value | Previous Value | YoY Change (%) |
Hang Seng Index (HSI) | 17,935.26 | 15,482.90 | +15.81% |
Hang Seng Tech Index (HSTI) | 3,915.24 | 3,132.90 | +25.00% |
Shanghai Composite Index | 2,984.23 | 2,780.00 | +7.34% |
China’s Manufacturing PMI | 50.6 | 49.8 | +1.6% |
China’s GDP Growth (YoY) | 4.9% | 3.8% | +1.1 pp |
Economic Developments
DeepSeek’s AI Disruption & Market Optimism
DeepSeek, a Chinese AI start-up, has developed a large language model (LLM) comparable to GPT-4 at a fraction of the cost.
This development has reignited interest in Chinese tech stocks, leading to a surge in AI-linked companies, including:
Alibaba Group (+19.4%)
Tencent (+17.8%)
Lenovo (+22.1%)
BYD (+14.6%)
SMIC (+26.5%)
DeepSeek's innovation is seen as a geopolitical and technological breakthrough as it provides an alternative to U.S.-developed AI models in an era of increasing U.S.-China tech restriction.
China’s AI & Semiconductor Resurgence
DeepSeek’s model is optimised for domestic Chinese chips, which benefits Huawei, SMIC, and Yangtze Memory Technologies (YMTC).
Chinese chipmakers have received a 10-15% valuation boost, as DeepSeek’s AI success has reduced their reliance on Nvidia GPUs.
The China Semiconductor Index has risen 21.4%, signalling optimism in self-sufficient chip production.
Sectoral Performance
Tech Stocks Leading the Charge
AI & Cloud Computing:
Alibaba Cloud reported a 35% increase in AI-based enterprise contracts following DeepSeek’s model release.
Tencent AI unveiled new applications leveraging DeepSeek’s open-source models, boosting stock performance.
Semiconductors:
SMIC (Semiconductor Manufacturing International Corp.) shares surged 26.5%, benefiting from AI-driven demand for China-made chips.
Huawei's AI division posted a 20% increase in pre-orders for AI computing servers.
EV & Battery Technology:
BYD shares gained 14.6%, supported by AI-driven battery efficiency improvements using DeepSeek’s models.
Lagging Sectors: Property & Retail
Real Estate:
Hong Kong-listed Evergrande (-6.2%) and Country Garden (-5.5%) struggled due to high debt burdens and weak property demand.
Consumer Goods:
JD.com (-4.3%) lagged behind as investors rotated capital into AI-driven sectors.
Policy and Regulatory Environment
China’s AI & Semiconductor Policy
Government Support:
The Chinese government has pledged $2 billion in AI funding for companies utilising domestic chip infrastructure.
Regulatory agencies fast-tracked approvals for AI firms like DeepSeek to deploy models at scale.
US-China Tech Tensions:
The Biden administration is considering additional sanctions on Chinese AI exports, but investors remain optimistic that China’s self-sufficiency efforts will cushion risks.
Market Implications
Stocks & Equity Markets
Short-Term Bullish Sentiment:
The Hang Seng Tech Index’s 25% rally suggests investor confidence in China’s AI leadership.
Analysts forecast another 5-10% upside for AI-related stocks in Q2 2025.
Potential Risks:
Valuation concerns: Some analysts warn of a speculative AI bubble if corporate earnings fail to justify rapid stock gains.
FX & Commodities
Chinese Yuan (CNY):
The CNY appreciated 0.7% against the USD as capital inflows surged into China’s AI sector.
Foreign investors increased purchases of HK-listed tech stocks via the Stock Connect program.
Gold Prices:
Gold remains above $2,800 per ounce, reflecting global geopolitical uncertainties, despite Hang Seng’s AI-driven rally.
Bonds & Fixed Income
Hong Kong 10-Year Bond Yield:
Yield rose to 3.15% (+20bps), reflecting rising investor risk appetite shifting from bonds to equities.
Chinese corporate bonds gained 1.2%, led by AI-focused firms.
Forecasts and Projections
Short-Term (Next 6 Months)
HSI target: 18,500 - 19,000, driven by continued AI momentum.
Hang Seng Tech Index (HSTI): Possible +10% upside if earnings justify AI-led gains.
AI Sector Rotation: AI-linked stocks are expected to outperform while property and retail may remain weak.
Long-Term (12+ Months)
Sustainability of AI Boom:
DeepSeek’s long-term viability will determine if China’s AI leadership can translate into sustained tech outperformance.
Geopolitical Risks:
U.S. tech export policies could challenge China’s AI ambitions, impacting sentiment.
Key Takeaways
Hang Seng Tech Index surged 25% due to AI optimism, and DeepSeek emerged as a key market catalyst.
HSI climbed 15.81%, with AI, semiconductors, and cloud computing leading gains.
Although Investor sentiment remains bullish, valuation risks could emerge if earnings fail to support AI-driven stock prices.
China’s AI self-sufficiency push benefits domestic chipmakers like Huawei, SMIC, and YMTC, reducing reliance on U.S. semiconductors.
Short-term targets: Analysts see HSI reaching 18,500-19,000 if momentum holds.
Sources
Financial Times (2025) China's tech stocks enter bull market after DeepSeek breakthrough. Available at: https://www.ft.com/content/af0636d6-59af-453c-9d75-6f6a3d9f11ce (Accessed: 13 February 2025).
Financial Times (2025) FirstFT: Chinese tech stocks ride DeepSeek wave to bull market. Available at: https://www.ft.com/content/aa752388-25d8-4c10-bc47-97ef2155f72d (Accessed: 13 February 2025).
MarketWatch (2025) Invest in these safe havens to protect against Trump tariff fallout, Goldman says. Available at: https://www.marketwatch.com/story/invest-in-these-safe-havens-to-protect-against-trump-tariff-fallout-goldman-says-b05c140f (Accessed: 13 February 2025).
Reuters (2025) Morning Bid: China AI rally rouses trade war-weary markets. Available at: https://www.reuters.com/markets/europe/global-markets-view-europe-2025-02-07/ (Accessed: 13 February 2025).
Reuters (2025) Morning Bid: Tech pierces trade gloom, Softbank reports. Available at: https://www.reuters.com/markets/asia/global-markets-view-asia-graphics-2025-02-11/ (Accessed: 13 February 2025).
Reuters (2025) DeepSeek fever fuels patriotic bets on Chinese AI stocks. Available at: https://www.reuters.com/markets/asia/deepseek-fever-fuels-patriotic-bets-chinese-ai-stocks-2025-02-06/ (Accessed: 13 February 2025).
South China Morning Post (2025) Hong Kong stocks hit 4-month high on DeepSeek-driven revaluation. Available at: https://www.scmp.com/business/china-business/article/3298307/hong-kong-stocks-hit-4-month-high-deepseek-driven-revaluation-takes-hold (Accessed: 13 February 2025).
The Wall Street Journal (2025) DeepSeek Fuels Bullish Mood on China Tech Stocks. Available at: https://www.wsj.com/livecoverage/cpi-report-today-inflation-stock-market-02-12-2025/card/deepseek-fuels-bullish-mood-on-china-tech-stocks-RehUuG5t4cnlJMQobMLj (Accessed: 13 February 2025).
Yahoo Finance (2025) Hong Kong's DeepSeek-fuelled tech stocks back in bull market. Available at: https://finance.yahoo.com/news/hong-kongs-deepseek-fuelled-tech-093000306.html (Accessed: 13 February 2025).