#MacroFriday: Chinese Tech equities surge in 2025 following Deepseek AI breakthrough

The 30 largest technology companies listed in Hong Kong have surged more than 15% since the start of the year, driven largely by the release of Deepseek’s cost-effective AI model. This development has raised questions about the high capital expenditures in AI of US Big Tech firms, prompting a shift in investor sentiment away from US technology stocks in favor of Chinese tech equities.

 

However, a broader perspective reveals a more volatile trajectory for Chinese tech equities. After a stellar performance in 2020, both earnings and equity prices of Chinese tech companies collapsed in 2021 due to a government crackdown on the sector and the economic slowdown caused by China’s prolonged Zero-Covid policies. The sector reached its trough in autumn 2022, with earnings showing some recovery, though stock prices remained subdued.

 

The turning point came in September 2024, when the Chinese government announced new stimulus measures, reigniting investor confidence. Now, with Deepseek’s breakthrough, optimism in the Chinese tech sector is gaining momentum. Still, while sentiment has improved, the key question remains: can this development translate into sustained earnings growth? Over the same period, the US tech-heavy Nasdaq 100 and its constituent companies' earnings more than doubled. Whether the renewed enthusiasm for Chinese tech equities is the start of a broader shift or a short-term reaction remains to be seen. Earnings will tell…