Chinese tech stocks set to grow further

Chinese A shares posted a strong rally for the second consecutive session on Friday, boding well for a sustained market uptrend as investors re-evaluate Chinese stocks after advances in the country's artificial intelligence models surprised the market, analysts said.

The rise of DeepSeek, a Chinese private AI startup, not only reconfirmed China's capability to innovate in AI, but may promote global investors to fully recognize China's advantages in wider areas, potentially pushing the A-share market to exceed prior highs in the medium term, they said.

The Shanghai Composite Index gained 1.01 percent to close at 3303.67 points on Friday, closing above the 3,300 mark for the first time this year, after rallying by 1.27 percent on Thursday.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, gained 2.53 percent to close at 2174.35 points, after a 2.8 percent gain on Thursday.

According to market tracker Wind Info, total market turnover reached 2 trillion yuan ($274.43 billion) on Friday, the highest in more than a month, as DeepSeek's breakout success catalyzed gains in sectors like smart vehicles, computer hardware, software and the internet.

"Investors have recently begun to discover that this little-known Chinese AI company has achieved a similar level of performance as industry-leading United States AI companies," said David Chao, global market strategist for Asia-Pacific (ex-Japan) at Invesco, a global investment management company.

"Chinese equities, and especially Chinese technology companies are priced at a steep discount compared to their US counterparts, and similar to the AI development gap narrowing, so too is the valuation gap."

The broader ramification of this recent development could be that Chinese technology companies are still able to innovate, especially on software, despite US export restrictions on hardware, Chao added.

On Friday, China extended efforts to boost technological innovation with intensified financial support as a guideline released by the China Securities Regulatory Commission vowed to support high-quality science and technology enterprises in going public.

The guideline vowed to increase support for strategic industries such as next-generation information technology, AI, aerospace, new energy, new materials, high-end equipment, biomedicine and quantum science and technology.

Invesco is not the only foreign financial institution that foresees an upward revision of Chinese tech stock valuations.

Peter Milliken, Deutsche Bank's APAC head of company research, said China's technological achievements have been discounted by investors, but such a discount is poised to disappear.

It is becoming "impossible to not acknowledge" China's superior performance in multiple spheres like manufacturing and increasingly services, Milliken said in a report.

"We believe the bull market for H shares and A shares began in 2024, and will exceed prior highs in the medium term."

The A-share benchmark SCI touched 3674.4 points in October, the highest in nearly three years, before dropping later.

Yang Delong, chief economist at First Seafront Fund, said the A-share market is expected to continue a bull market trend that "could surprise many investors", as macroeconomic adjustments continue to intensify while household savings may flow from the property market to equity assets.

"The market would perform well once it generates a profit-making effect, whereby a positive cycle is formed as rising stock prices lead to investors gaining profits and thus attract more investors.

"In that case, expecting the SCI to touch a level around 4,000 points this year might not be overly aggressive," Yang said, highlighting opportunities in the sectors of humanoid robotics and new energy.

Nevertheless, new US tariffs on Chinese goods may trigger risk-aversion and bring pressure on A shares, said a CGS International report.

Wang Keju and Dong Yilang contributed to this story.