In the ever-evolving landscape of global technology investments, the emergence of innovative platforms such as DeepSeek has piqued significant interest among investors, igniting a new wave of enthusiasm in the capital marketsHowever, amidst this technological fervor, we have recently witnessed a noticeable pullback in several Chinese tech stocks, leading to growing concerns about the future performance of not only these stocks but also the broader spectrum of Chinese assetsThe question looms: Is there still potential for market recalibration in the realm of technology stocks and beyond?
The landscape of the tech sector has been dynamic latelyFollowing a dramatic surge in the A-share and H-share technology indices, the technology stocks from China experienced a downturnOn the heels of impressive rallies, concepts surrounding DeepSeek, AIGC, and various AI applications encountered corrections, while the Hang Seng Technology Index reported a two-day drop of 2.74%. Specifically, on February 25, there was an alarming near 4% decline at market opening.
This shift in momentum was not entirely unforeseen, as highlighted by the insights of analysts including Fu Si from Goldman SachsHe suggested that profit-taking by investors was a natural response to the previously bullish run, influenced by both macroeconomic factors and the evolving global environmentNotably, while there appears to be a short-term retreat, this does not signify a fundamental reassessment of AI's growth potential, with optimism regarding the long-term prospects for the AI sector remaining intact.
"The essence behind the unwavering stock prices lies in verifying tangible growth in fundamentals due to AI," stated Lu Haocuan, a senior analyst at Shenwan HongyuanHe emphasized that as time progresses, companies linked to cloud services, data centers, or those possessing specific vertical datasets should exhibit significant growth owing to AI advancements.
Despite these immediate adjustments in stock prices, industry experts are still optimistic about the potential for reevaluation of Chinese tech assets
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Some analysts believe that a broader revaluation across the A-share market is plausible; however, current market liquidity may be insufficient to facilitate numerous upward movements in prices across various sectorsThe anticipated rise in AI stocks may also take time to impact other segments of the market significantly.
A closer look at the recent market performance reveals disparate trends among technology stocksSince the launch of the DeepSeek-R1 model on January 20, 2025, A-share and H-share technology sectors surged, while American tech stocks have faced fluctuationsBy February 20, the Hang Seng Technology Index had escalated by 22.79%, and the A-share markets followed suit, with the Star Market and ChiNext indices increasing by 9.73% and 7.66% respectivelyMeanwhile, the Nasdaq indices barely moved, posting a marginal increase of 1.69%.
During this timeframe, the DeepSeek concept sectors in A-shares saw an astounding rise of over 60%, with specific applications in robotics and computational AI exceeding 30% in terms of cumulative gainsHowever, after this price surge, some tech stocks began to retreat over the last two trading days, raising alarms among investors about the sustainability of these gainsOn February 24 and 25, the Hang Seng Technology Index dipped by 1.19% and 1.57%, with the latter day opening down nearly 4%. Meanwhile, the DeepSeek concept sectors in A-shares faced a cumulative decline of almost 4%, and other sectors like AIGC and AI Applications dropped by over 2%. The Nasdaq experienced a similar downtrend, reporting a drop of over 3% in late February.
This broad sell-off has led many in the market to speculate on the future trajectory of technology stocksSome analysts warn of a crowded tech sector, where investor sentiment shifts can lead to profit-taking strategies that might exacerbate volatilityThey caution investors to conduct thorough fundamental analyses rather than engaging in knee-jerk reactions to market trends.
Despite such concerns, others within brokerage firms suggest that even a temporary technical correction in the tech sector could still see strong market participation, potentially providing support for long-term growth trajectories
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Global investors, notably, are beginning to broaden their horizons, shifting their focus from the most apparent AI beneficiaries in the tech sector to other related fields, including potential opportunities in leading Chinese firms.
As per Fu Si's insights, there is an increasing likelihood that long-term optimism surrounding AI's role in China's economic growth will prompt foreign investors to bolster their equity positions within the regionThis may lead to a more balanced investment distribution across various sectors, including mid-cap technology firms that could unveil new prospects over the upcoming years.
In this context, many industry insiders express optimism about the potential revaluation of Chinese tech assetsLu Haocuan attributes this sentiment to several key factors: first, after several years of bearish market conditions, stocks such as those within the Hang Seng Technology Index are trading at a significant discount compared to their global counterparts; second, the cost-effective and open-source attributes of DeepSeek are hastening AI's commercialization, ushering in an optimistic outlook for broader applications; third, firms like Alibaba are ramping up capital expenditures as they seize market opportunities, which could stimulate the entire industry chain's performance in the coming years.
Given this backdrop, the potential for a structural shift in the capital markets appears promising. "With the rise of domestic tech innovations led by DeepSeek, the valuations of Chinese technology assets are poised for further reassessment—a dynamic that may yield an increasing array of structural investment opportunities," noted a reported analysis from Ping An Securities.
Nonetheless, the question of how substantial this revaluation may be remains speculativeAnalysts expect significant growth potential but acknowledge that forthcoming developments within the industry—including capital spending by cloud service providers, breakthroughs in AI application efficiency, and advancements in domestic chip replacements—will be pivotal in framing this landscape
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The current disparities in valuation levels between China's leading tech companies and their international peers suggest that while some segments of the tech sector may be lagging, progress is on the horizon.
Investor sentiment concerning the broader market remains cautious, especially considering the lingering concerns about inflation trends and geopolitical uncertaintiesAs Chinese tech captures the attention of the investment community, one wonders how these fluctuations will ultimately shape the future of the A-share market.
"We hold a positive yet cautious outlook on the market; AI remains a driving opportunityShould trends in real estate stabilize, coupled with inflation reaching a turning point, market responsiveness is likely to heighten," Lu Haocuan cautioned, while also noting the necessity to weigh potential risks, including ongoing geopolitical tensions and economic fallout from the real estate sector.
Goldman Sachs reaffirmed its "Overweight" rating on Chinese A-shares and H-shares, citing robust fundamentals and liquidity as benefactors of AI's advancements in H-shares, while also recognizing the potential for catch-up in A-sharesThey predict a possible 2% outperformance from the Chinese market relative to peers.
Small and mid-cap A-share indices are anticipated to fare even better due to their heightened exposure to AI while also being backed by substantial retail ownership, which can amplify market sentimentsAmong large-cap indices, the CSI 500 is particularly promising due to its response to technological advancements and innovations.
On an individual investment level, industry insiders, including partners from Rongyang Investment, caution that despite high valuations within the broader tech sector, it’s crucial not to overlook areas of growth that point towards sustainable long-term trendsThey suggest focusing on companies with versatile capabilities across the entire supply chain amidst this landscape.
Within specific sub-sectors, Ping An Securities advocates for targeting two primary themes: firstly, fostering domestic AI hardware development, including domestic chip replacements and expansion within cloud service sectors; secondly, examining potential growth within practical AI applications across diverse industry segments such as finance, healthcare, education, and robotics.
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