In a recent report, Goldman Sachs, one of Wall Street's financial titans, highlighted a significant trend in the investment landscape: hedge funds around the globe have been vigorously purchasing Chinese stocks for most of this yearThis interest has intensified notably with the rise of DeepSeek, a domestic artificial intelligence startup from China, which is spearheading the development of a new paradigm of AI large models centered around “low cost” and “high efficiency.” As DeepSeek begins to integrate deeply with AI applications in consumer electronics, Goldman Sachs observed an uptick in bullish sentiment among global investors towards Chinese equities in just the past week.

Goldman Sachs' client report noted that, as of February 7, the combined offshore and onshore Chinese stock markets—including U.S.-listed Chinese companies, Hong Kong stocks, and A-shares—have emerged as the largest nominal net buyer of stocks globallyThis trend has garnered significant attention from investment institutions worldwide.

Data compiled by Goldman Sachs revealed that during the week of February 3-7, hedge funds made the largest purchases of offshore and onshore Chinese stocks seen in four monthsGoldman Sachs' major brokerage unit provides financing to global investment management institutions like hedge funds, allowing them insight into trading flows involving these funds.

The emergence of DeepSeek has ignited a worldwide wave of investment interest in China's AI sectorThe company's revolutionary “super low-cost AI large model” is perceived as a catalyst for a previously unseen bull market for Chinese assets, particularly Chinese stocks, especially as investors have become increasingly wary of the soaring valuations of U.S. tech stocksDeepSeek's entrance into the scene represents a significant turning point for global capital, triggering an unprecedented investment frenzy surrounding China's artificial intelligence landscape, which includes both leveraged hedge funds and traditional asset management giants.

Since the launch of its open-source AI model that matches the performance of OpenAI's o1, DeepSeek has posed a new threat to major technology companies in the U.S

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Despite facing restrictions from Western countries in acquiring advanced chips, DeepSeek's development costs remain significantly lower than those incurred by American competitorsFollowing this launch, Nvidia—considered the dominant player in the AI chip market—saw a staggering drop in its market value, losing over $500 billion in a single day.

Recently, the DeepSeek R1 model, crafted by a team of AI engineers from China, has gone viral in the United States, consistently ranking high on app download charts in both China's and America's app stores, surpassing even ChatGPT in the U.S. download rankings.

The DeepSeek team has demonstrated the ability to produce a revolutionary open-source AI model with top-tier inference capabilities by utilizing ordinary AI accelerators—without the need for the world’s most advanced Nvidia high-performance GPUs—and doing so at an extremely low costWith an investment of less than $6 million and 2048 units of H800 chips (which lag behind the H100 and Blackwell in performance), the DeepSeek team's creation rivals the performance of OpenAI's o1 modelIn stark contrast, the training costs for models like Anthropic and OpenAI have reached as high as $1 billion, with pricing for DeepSeek's input and output tokens being drastically lower than that of OpenAI.

As news of the “DeepSeek low computational cost storm” swept across the globe, investors have begun to question the rationale behind the extravagant spending plans of U.S. tech giants on AI initiatives, which often run into the hundreds of billionsThe contrast between DeepSeek’s costs and the spending patterns of high-profile U.S. tech stocks has left many investors in shock and frustration as they perceive their shareholder profits being eroded by unreasonable expendituresConsequently, they have continued to sell off shares of high-valuation tech companies since the end of January.

An institutional sales director from Hong Kong remarked, “DeepSeek is changing the narrative that ‘China is inconsequential in the AI field and losing the AI war.’”

The launch of DeepSeek R1—a large model comparable in performance to OpenAI's o1 but with significantly lower training and inference costs—has sparked fervor among global investors towards Chinese internet companies, particularly those leading in semiconductors and software

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This has catalyzed a so-called “technical bull market” for the Hang Seng Tech Index, which tracks Chinese tech stocks traded on the Hong Kong exchange.

The sentiment in Hong Kong's stock market, fueled by hopes for a prolonged bullish trend, appears even more robust than in China’s A-shares marketThanks to the Federal Reserve's interest rate cuts and domestic monetary stimulus measures providing liquidity support, Hong Kong stocks are benefiting from both “Chinese and U.S. dual liquidity dividends.” Following the investment boom spurred by DeepSeek, the Hong Kong market has become the gateway for foreign capital to invest in Chinese companies.

With major Chinese tech firms such as Alibaba, Tencent, and Baidu being tracked by the Hang Seng Tech Index, the benchmark has earned the nickname “the Eastern Nasdaq.” Some analysts have benchmarked the Hang Seng Tech Index against the Nasdaq 100, which includes giants like Apple, Nvidia, Microsoft, and Google, suggesting that as the performance and market values of these Chinese tech giants continue to rise, the fully realized “Hang Seng Tech Index” could eventually mirror that of the Nasdaq 100.

As Alibaba and Tencent showcase infrastructure capabilities that encompass cutting-edge AI large models, robust cloud-based AI computational systems, and comprehensive platforms for AI application software development, the potential market size for these technologies might rival that of Amazon AWS and Microsoft, possibly triggering a similar surge of global capital toward North American cloud computing giants witnessed in 2023-2024.

If breakthrough AI application software begins to emerge on a large scale from 2025 onwards, the implications for cloud giants like Alibaba, Tencent, and JD.com could be significantThese AI applications will rely heavily on the powerful computational resources provided by these cloud giants, as they focus on establishing ecosystems for both business-to-business (B2B) and consumer-oriented AI software development aimed at lowering technical barriers for non-IT professionals across various industries.

The chorus of “go long on China” has recently echoed through Wall Street, suggesting that both Hong Kong and A-share markets could experience a “Sputnik moment” in 2025.

Several Wall Street analysts and institutional investors believe that, alongside the investment frenzy ignited by DeepSeek, global sentiment towards the Chinese stock market is gaining momentum due to the supportive tone of Beijing's policy easing

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Moreover, recent U.S. tariffs on Chinese goods—set at 10%—are far less severe than originally threatened, bringing relief to market participants.

Statistics show that the MSCI China Index has risen consecutively for four weeks since mid-January and has increased by over 6% in February, outperforming major global stock markets.

In light of the “DeepSeek shockwave” that has impacted U.S. tech giants significantly, Goldman Sachs has reaffirmed its bullish stance on the Chinese stock marketThe firm expects the MSCI China Index to reach 75 points under neutral conditions this year, with optimistic projections suggesting the index could soar by 28%. Goldman emphasizes that stocks in the “soft tech” sector are anticipated to outperform the broader marketThe MSCI China Index includes key Chinese assets like Alibaba, Tencent, Kweichow Moutai, and China Yangtze Power, and is currently lingering around 69 points.

Additionally, billionaire David Tepper’s hedge fund, Appaloosa LP, known for its previous declaration to “buy everything Chinese,” significantly increased its holdings in two major Chinese stocks—Alibaba and JD.com—in the fourth quarter, as per recent investment filingsThese companies have become central positions within the hedge fund.

Regarding capital inflows, Goldman Sachs’ compiled data indicates that the previous week saw 95% of hedge fund purchases in the offshore and onshore Chinese stock markets centered around a single stock, with transactions mainly occurring in sectors like consumer discretionary, information technology, internet, industrial, and communications servicesIn contrast, energy, utilities, and real estate sectors faced sell-offs in the global hedge fund space.

Currently, global capital allocation towards Chinese stock markets remains at historically low levels, which is why financial giants like Goldman Sachs continue to shout that the rally in Chinese assets is far from over

Goldman Sachs’ data reveal a mere 7.6% allocation of hedge funds in the Chinese stock market relative to its total major brokerage accounts, placing it only in the 23rd percentile over the past five years; however, this marks a substantial improvement compared to January's figures, which stood at the 10th percentile.

After DeepSeek’s emergence, numerous top strategists on Wall Street have revised their bullish outlooks on the Chinese stock market, asserting that as the global competitiveness of Chinese tech firms is increasingly recognized, the “China discount” will vanish entirely, potentially allowing stock indices to break past previous historical milestonesMichael Hartnett, a notable strategist from Bank of America, stated that the performance of the U.S. stock market will begin to taper off gradually starting in early 2025, following years of strong growthWith the "Seven Giants" no longer able to sustain long-term market support, he advises investors to start buying into Chinese equities.

Deutsche Bank analyst Peter Milliken, in a report released on February 5, framed China’s technological innovations as driving a “cognitive leap” worldwide under the concept of "China's Sputnik Moment." Marc Andreessen, a Silicon Valley investor, even characterized DeepSeek's release as “the Sputnik moment for AI,” indicating the undeniable rise of Chinese technology.

The report suggested that 2025 will be a pivotal year for global investors reevaluating the Chinese stock marketFrom textiles and steel to electronics, and more recently, electric vehicles, nuclear energy, high-speed rail, and artificial intelligence, Chinese enterprises have showcased robust global competitiveness, prompting a reevaluation of the “China discount,” thereby propelling Chinese A-shares and Hong Kong stocks into a long-term bull market.

One of the world’s largest hedge funds, Man Group, has recently expressed significant optimism for the prospects of the Chinese stock market

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