DeepSeek’s latest breakthrough in artificial intelligence has sparked a significant resurgence of investment in Chinese equities, drawing substantial funds from Indian markets. This shift comes as hedge funds rush to capitalize on a tech rally powered by DeepSeek’s advancements, coupled with optimism for potential economic stimulus in China.
In stark contrast, India is experiencing a record outflow of cash amid concerns about slowed macro growth, fading corporate earnings, and steep stock valuations.
Over the last month, China’s equity markets have climbed by over $1.3 trillion in total value, while India has seen a contraction of more than $720 billion. The MSCI China Index has outperformed its Indian counterpart for the third month in a row, marking its longest winning streak in two years.
According to Ken Wong, an Asian equity portfolio specialist at Eastspring Investments, DeepSeek has demonstrated China’s crucial role within the AI ecosystem. Eastspring Investments has been increasing its investment in Chinese internet companies in recent months, while reducing holdings in smaller Indian stocks that have become overvalued.
This pattern marks a reversal from the recent focus on India, driven by its infrastructure expansion and its potential as a new manufacturing hub. The recalibration towards China is largely due to a reevaluation of its investable prospects, especially in the technology sector.
Vivek Dhawan from Candriam suggests that the economic and market benefits tied to DeepSeek’s developments are making China more appealing compared to India on a risk-reward scale.
In addition, Bloomberg’s data analysis also shows major Asian equity funds reducing their Indian stock exposure while expanding investments in China.
Goldman Sachs noted that the launch of DeepSeek-R1 and other competitive AI models from China has transformed perceptions of its tech landscape, boosting investor optimism and leading to a 27% rally in the Hang Seng Tech Index and a 19% rise in the MSCI China Index over the past month.
The giant investment banking firm indicates that AI could lift Chinese earnings per share by 2.5% annually over the next decade, increasing the fair value of equities by 15-20% and potentially drawing over $200 billion in inflows. However, significant policy actions are needed to address macroeconomic challenges and secure sustainable growth.
