The enthusiasm for asset revaluation in China has been on an upward trend, particularly fueled by recent technological advancements promoted by industry giants like Alibaba and TencentThese developments have reignited investor interest, leading to significant gains in the Hong Kong stock market, notably reflected in the Hong Kong Hang Seng Index and its tech counterpart, the Hang Seng Tech Index, which recently hit a three-year high.

The release of information regarding DeepSeek, an innovative AI technology, has particularly caught the attention of investorsAlibaba's collaboration with Apple to enhance AI functionality and Tencent's recent gray release of DeepSeek-R1 within its WeChat Search feature are pivotal in driving stock prices upwardFor instance, on February 14, 2023, the Hang Seng Index surged by 3.69%, with the Hang Seng Tech Index climbing 5.56%. Stocks of companies like Alibaba Health spiked by 29%, and Bilibili saw a remarkable 15% increase, with other major players like JD.com, Tencent, and Xiaomi all experiencing gains exceeding 7%.

This tremendous growth reflected in Hong Kong’s markets has been further characterized by the significant performance of Alibaba, particularly in the AI chip and application sectors, leading to a weekly gain of 24.1%. Notably, on February 17, Tencent shares rose by 3.96%, and other Tencent-related stocks also demonstrated strength, including Weimob Group, which grew by 11.54%.

Since the beginning of 2025, the Hang Seng Tech Index has appreciated by over 23%, outperforming major global market indices and reaching levels not seen since February 2022. Furthermore, the Hang Seng Index itself has increased by 12.74%, with just a small margin to reach its peak from early October 2024. Investors are buzzing with energy, caught between FOMO (Fear of Missing Out) and the exuberance of recent profits

Advertisements

Many are expressing sentiments like, “Quick, buy Alibaba to break even on my investments that have been stagnant for three years.”

Alibaba's stock price reached its pinnacle back in October 2020 when shares were valued at 306.83 HKD, followed by a steep decline to 57.65 HKD by October 2022. This current momentum raises questions about the sustainability of Alibaba's surge after its partnership with Apple on AI developments, and what impact Tencent's collaboration with DeepSeek might have on its stock trajectory.

Since early 2025, the narrative surrounding DeepSeek and AI innovations from Alibaba and Tencent has electrified investorsWith Southbound capital and international institutions investing heavily into what is being termed a "value pit" in the Hong Kong market, there is a palpable shift in investor sentimentThe market witnessed a tech bull run, with the Hang Seng Index climbing over 16% since mid-January, while the Hang Seng Tech Index has appreciated by more than 28%. The focus of this bullish trend has predominantly been on Alibaba and Tencent, two leading players in the tech sector.

On February 13, during a confirmation from Alibaba’s CEO Joseph Tsai, it was revealed that Apple and Alibaba have partnered to develop AI functionalities targeted at iPhone users in China, igniting a positive market responseFurthermore, Alibaba’s stock increased by 50.61% by mid-February, pushing its market capitalization beyond 2.36 trillion HKD, making it one of the biggest beneficiaries of this market shift.

According to Morgan Stanley's research, the expansion of AI technology is anticipated to generate significant value within Chinese tech stocks, which significantly influences investors' bullish outlook on the collaboration between these tech behemoths and their respective share prices

Advertisements

Tencent's AI assistant, Yuanbao, was previously integrated with DeepSeek-R1, and now the company has confirmed the integration of WeChat Search, currently in a gray testing phase with DeepSeek-R1.

DeepSeek's recent success is further underlined by the app’s performance; it notably exceeded 30 million daily active users on February 1, achieving 100 million new users within just seven days of launch, breaking industry records along the wayData from QuestMobile indicates that DeepSeek’s daily active user count surpassed leading AI applications, asserting its dominance in the sectorCitic Securities has pointed out that DeepSeek's algorithm optimizations significantly reduce model training costs, which is likely to alleviate market concerns regarding Tencent's investments in AI.

However, some analysts, including those from UBS, caution that the rapid rise driven by AI enthusiasm may face short-term corrections, despite projecting that further upward movement is probable within the internet sectorThe current P/E (Price to Earnings) ratios remain relatively low, maintaining an average of 14 times, with earnings per share growth expected to reach 15% from 2024 to 2026. The internet stock prices have yet to account for potential macroeconomic stimulus measures from the government and the significant productivity gains brought about by AIFurthermore, the upcoming fourth-quarter earnings reports from major internet companies are expected to be largely positive, which could serve as a catalyst for short-term market fluctuations.

As we approach the period from February 18 to 21, during which companies like Alibaba, Baidu, NetEase, and Bilibili are set to release their quarterly earnings, investor anticipation continues to build.

The rapid ascent of the Hong Kong stock market post-Spring Festival raises questions regarding who the primary driving force behind this surge has been

Advertisements

DeepSeek's AI-driven wave has notably shifted investor sentiment and the macro narrative, leading one to ask, who are the decisive buyers behind this trend? Additionally, how much more room for growth remains?

According to research from CICC (China International Capital Corporation), the quick uptick in the Hong Kong market following the Spring Festival is reminiscent of the fast rises witnessed in previous years, signifying investor emotion-driven momentumUnlike past surges, this uptick is predominantly focused on AI-related tech sectors, highlighting a distinct structural difference and explaining the laggard performance of the financial sector compared to the A-share market.

CICC further notes the characteristics of inflows during this rebound, primarily driven by Southbound funds, passive investments, and trading funds, while the long-term foreign capital appears to be on the withdrawal sideSouthbound funds have seen a cumulative inflow of 26.6 billion HKD since the Spring Festival, paralleling the inflows observed during the past surges in September 2024.

Despite the outflow of long-term foreign capital signaling a cautious approach, suggestive of a more provincial outlook, there’s a noted acceleration in ETFs' passive investment flows, heavily favored by retail investors in this phaseThe cumulative inflow for this type of fund is about 1.94 billion USD, still far below the sprawling inflows recorded during similar previous events.

The Hong Kong market is exceedingly responsive to changes in the external environment while also being influenced closely by the political and economic conditions in mainland China and Hong Kong itselfShould there be a resurgence of sentiment among tech stocks to 2021 peaks, analysts predict that the Hang Seng Index could surge to 25,000 points, contingent on supportive government measures and improved economic data fostering a rebound in the local real estate sector

The Hang Seng Index’s rational level has been indicated around 23,000 points, reflecting the expected gains amid an improving economic outlook for the coming years.