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<Research>HSBC Research: DeepSeek Displays CN Innovation Capability, which May Prompt CN Stock Mkt Re-rating & Foreign Inflow Uptick
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HSBC Global Research released a report on the Chinese market, which has so far been relatively unaffected by the US tariff hikes, with more signs of recovery over the Spring Festival. The launch of DeepSeek, an open-source AI foundation model, is a great example of China's ability to innovate, which the broker recognized that this could lead to a re-rating of the Chinese market. The broker saw DeepSeek as a catalyst for a re-rating of China's stock market, with DeepSeek's development wooing global market attention and testifying China's persistent ability to innovate, which will account for a quarter of the world's patent filings by 2023. However, the low correlation between the PE of the CSI 300 Index and the China Innovation Index (CII) suggested that China's stock market has yet to demonstrate the country's advancing innovation capacity. The broker assumed this will change. As investors become more aware of this innovation, the valuation gap between China and emerging markets will narrow and foreign capital inflows will pick up. In addition, A-share tech firms are likely to benefit from policy support. The significance of DeepSeek, according to the broker, is not just that the LLM is downloaded 5 million times a day, has a quarter of ChatGPT's DAUs within just two weeks of launch, and axes the cost of tokens by 97%, but that it demonstrates a very different approach to AI innovation: algorithmic optimization vs U.S. mega-computing power. For the first time, the AI industry is beginning to accept that China and the U.S. can take turns leading AI innovation. For example, Amazon (AMZN.US), Google and Microsoft (MSFT.US) have all adopted DeepSeek for their cloud services in the past week, so the broker thinks the global focus on DeepSeek could prompt investors to reassess China's innovation capabilities, which it believes could be a catalyst for a re-rating of China's stock market in 2025. AAStocks Financial News |
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