DeepSeek AI advance calls for rethink on Chinese equities, investors say

Chinese artificial intelligence upstart DeepSeek shocked many investors and rattled the U.S. stock market, which has relied on gains from AI for the past two years. But now investors who have focused on China say DeepSeek is only one of many examples of China’s innovation prowess — and shows that the country’s battered stock market has been overlooked for too long. “Chinese stocks have been very unfairly valued just because of this overall geopolitical noise,” said Ben Harburg, MSA Capital Managing Partner and Core Values Alpha founder. “China is a much more formidable business and technology competitor than people have been led to believe — America is definitively not leading on innovation right now — it has yielded its lead to the Chinese … across almost every key vertical,” Harburg continued. “China is building products that are perfect for digital natives.” Taking note Investors have begun to take note. U.S.-traded shares of major internet companies such as Alibaba and Baidu are up more than 1.5% since the start of the week. The iShares China Large-Cap ETF gained more than 1% on Monday, before pulling back from its gains during Tuesday’s session. Malcolm Dorson, head of emerging markets strategy and senior portfolio manager at Global X, said he has looked at Chinese equity markets using Warren Buffett’s strategy: “be greedy while others are fearful.” The impact of DeepSeek didn’t come as much of a shock to Dorson, who has been bullish on Chinese technology stocks since early 2024. “But we see our clients taking a closer look with these headlines reminding people that China is a global leader in various spaces in tech, including e-commerce, electric vehicles, solar energy,” Dorson said. Compared to Nvidia and other Magnificent Seven stocks that have been selling at lofty valuations, Chinese growth stocks have been relatively undervalued. But Chinese technology companies stand to benefit from a late-mover advantage in the tech space, in Harburg’s view. Combined with more central government stimulus measures, investors “should see significant upward movement in Chinese stocks,” Harburg said. “China definitively, is kind of in a significant lull right now in terms of domestic consumption and domestic market,” Harburg noted. “But Pinduoduo , Alibaba , BYD , Xiaomi and EV makers — these are all global companies [with] international markets that are thriving. China is definitively building hardware that is the product of choice for all the next billion high growth consumer markets, be it Southeast Asia, Middle East and Africa, Latin America; Chinese software, like TikTok, is dominating.” Trade rhetoric Although tariff uncertainties continue to weigh on sentiment on Chinese stocks, President Trump’s trade rhetoric could end up being more aggressive than what ends up as law. “We believe the bark will be worse than the bite,” said Dorson. “The market is currently pricing in the worst. Similar to 2016, we believe the two sides will reach a deal in the middle, which will bring a relief rally and let investors focus on fundamentals again.” Larry Tentarelli, Blue Chip Daily Report chief technical strategist, is more cautious on China due to ongoing concerns regarding its struggling property market, but even he views the DeepSeek news as a positive sign for Chinese equities “In the short term, this is definitely bullish, but I don’t know if it’s big enough to break out of the bear market,” Tentarelli said. “But China has turned a negative — restricted access to the U.S.’s [most advance AI processors] — into a positive, and it’s really caught the U.S. off guard.”