DeepSeek triggers a huge wave of AI investment in China, with global hedge funds flocking to grab Chinese assets.

In a recent report, Wall Street financial giant Goldman Sachs pointed out that global hedge funds have been buying a large amount of Chinese stocks for most of this year. What is even more noteworthy is that as the Chinese artificial intelligence startup DeepSeek rises and leads a new "AI large model computing power paradigm" with core principles of "low cost" and "high energy efficiency", Goldman Sachs stated that DeepSeek has begun to deeply integrate with AI application terminals such as consumer electronics, further intensifying global investors' enthusiasm for Chinese stocks in the past week. According to a client report by Goldman Sachs, based on fund flow compilation data as of February 7th, the offshore and onshore Chinese stock markets (including Chinese concept stocks in the US stock market, Hong Kong stock market, and A-share market) combined have become the "largest net buying market in terms of nominal scale" globally, which has attracted the attention of global investment institutions. Goldman Sachs compilation of statistics shows that the buying scale of hedge funds for offshore and onshore Chinese stocks reached the highest level in four months during the week of February 3rd to 7th. Goldman Sachs's main brokerage department provides financing to hedge funds and other global investment management institutions and can see their fund trading flows. DeepSeek ignites a global investment wave around Chinese AI The groundbreaking "ultra-low-cost AI large model" released by DeepSeek has become an unprecedented "bull market catalyst" for global investors to reassess Chinese assets, especially evaluating the Chinese stock market (including Hong Kong and A-shares), at a time when they were already worried about the increasing valuations of US tech stocks. The emergence of DeepSeek has ignited a global investment frenzy unprecedented around the Chinese artificial intelligence field, including leveraged hedge funds and traditional asset management giants. After the release of the epoch-making performance equivalent to o1 open-source AI large model by DeepSeek, major Chinese internet companies have emerged as new threats in the American AI field. Despite facing restrictions from Western countries in importing the most advanced chips, the development cost of DeepSeek applications is far lower than that of American competitors. This release caused a market capitalization loss of over $500 billion in a single day for the "AI chip overlord" NVIDIA. Recently, the DeepSeek AI engineering team from China Hong Kong created the DeepSeek R1 large model, which topped the hot search rankings in the US, and DeepSeek application continues to top the free app download rankings for Apple's App Store in China and the US regions, surpassing ChatGPT in the US download rankings. The DeepSeek team has demonstrated that they can train a breakthrough open-source AI large model with top-tier reasoning capabilities using extremely low costs and performance ordinary AI accelerators in the absence of the world's top NVIDIA high-performance AI GPU, with a low investment cost of less than $6 million and 2048 chips far inferior in performance to H100 and Blackwells H800 chips. By comparison, Anthropic and OpenAI training costs amounted to $1 billion, making DeepSeek's reasoning input and output token pricing significantly lower than OpenAIs pricing. With the "DeepSeek low computing cost storm" sweeping globally, investors have started to strongly question the rationality of the AI money-burning plans of American tech giants, who have been overly enthusiastic about artificial intelligence, given that their expenditures easily exceed billions of dollars, compared to DeepSeek's mere million-dollar level costs, which have shocked and angered these American tech stock investors. They believe that shareholder profits are continuously eroded by unreasonable spending, which is why they have been continuously selling off high-valuation tech stocks of the top seven giants in the US tech market since the end of January. A sales director from China Hong Kong said, "DeepSeek is changing the pessimistic view that 'China is irrelevant in the AI field and is losing the AI war.'" The performance-comparable DeepSeek R1 large model launched by DeepSeek, which has much lower AI training and inference costs than OpenAI, has sparked a fervent bullish sentiment among global investors towards Chinese internet companies and leaders in Chinese semiconductor and software industries, driving the benchmark index of Chinese technology stocks traded in Hong Kongthe Hang Seng Tech Indexinto a so-called "technical bull market". In the Hong Kong stock market, the optimistic sentiment for an "extended bull market" is even more intense than in the A-share market. Benefitting from the Fed rate cut and the liquidity support provided by domestic monetary stimulus policies, the Hong Kong stock market has enjoyed a "dual liquidity dividend" from both China and the US, and with the recent explosion of Chinese AI investment frenzy by DeepSeek, the Hong Kong stock market, as the gateway for foreign investments in the Chinese market, has become the best entry point for external asset management institutions such as hedge funds to invest in Chinese companies, leading to a rush of foreign investments into the Hong Kong stock market. The Hang Seng Tech Index, covering tech giants such as Alibaba, Tencent, and Baidu, has been dubbed the "Eastern Nasdaq" and is being compared by some institutions to the Nasdaq 100 Index, which includes US tech giants such as Apple, NVIDIA, Microsoft, and Google. As these Chinese tech giants continue to grow in performance and market value, the future "complete Hang Seng Tech Index" may become the Nasdaq 100 Index. When Alibaba and Tencent showcase tags of "cutting-edge AI large model + powerful cloud AI computing system + comprehensive AI application software development platform", and these tags' scale grows as AI applications penetrate various industries in China, the future market size is expected to rival that of Amazon AWS and Microsoft, possibly leading to a similar investment frenzy in 2023-2024 when global funds poured into North American cloud computing giants. If killer-level AI application software/AI agencies begin to emerge on a large scale starting in 2025, it will be a major boon for Alibaba, Tencent, and JD.com, as these AI software, whether it is pre-The ecosystem of AI software developers relies heavily on the enormous cloud-based AI inference computing resources in the later stage, which cannot be achieved without the powerful computing platform support provided by these cloud giants. These cloud giants focus on the layout of both B-end and C-end AI application software developer ecosystems related to generative AI, aiming to significantly reduce the technical barriers for non-IT professionals in various industries to develop AI applications.The voice of "Investing in China" has recently echoed on Wall Street, and the Hong Kong A-shares may usher in a "Sputnik moment" by 2025. Some Wall Street analysts and institutional investors have expressed that in addition to the widespread explosion of Chinese AI investments driven by DeepSeek, the increasingly bullish sentiment towards the Chinese stock market from global funds is also strongly supported by Beijing's loose policy tone. Furthermore, the recent decision by US President Trump to levy an additional 10% tariff on Chinese goods was much lower than his initial threats, providing relief to the market. Statistical data shows that the MSCI China Index has risen continuously for four weeks since mid-January, with a more than 6% increase since February, outperforming major global stock markets. After being hit hard by the "DeepSeek shockwave," Goldman Sachs reiterated its bullish sentiment towards the Chinese stock market. Goldman Sachs expects the MSCI China Index to rise to 75 points this year under neutral expectations, with a potential increase of 28% under optimistic expectations. Goldman Sachs emphasized that stocks in the "soft technology" sector are expected to outperform the overall market. The MSCI China Index includes core Chinese assets such as Alibaba, Tencent, Kweichow Moutai, and China Yangtze Power, currently hovering around 69 points. It is understood that billionaire David Tepper, who boasted last year of "buying all Chinese assets," significantly increased his fund's holdings in the two leading Chinese concept stocks, Alibaba and JD.com, in the US stock market in the fourth quarter. According to a security investment disclosure report this week, these two companies became one of the largest holdings of his hedge fund. In terms of specific capital flows, statistical data compiled by Goldman Sachs shows that hedge funds concentrated 95% of their purchases in offshore and onshore Chinese stock markets on a single stock, mainly in non-essential consumer goods, information technology, internet, industrial, and communication services industries. In contrast, energy, utilities, and real estate were sold off by global hedge funds. Currently, global funds' allocation to offshore and onshore Chinese stock markets is still at historical lows, which is why major financial giants on Wall Street, such as Goldman Sachs, have continued to shout about the upward trend in Chinese assets. Goldman Sachs' compiled data shows that hedge funds' allocation in the Chinese stock market accounts for 7.6% of Goldman Sachs' major brokerage accounts, ranking only in the 23rd percentile over the past five years, a significant increase compared to last month when it was around the 10th percentile. After DeepSeek emerged, some top Wall Street strategists have generally held bullish views on the Chinese stock market, believing that with the increased global recognition of Chinese technology companies, the "China discount" will completely disappear, and stock indices are expected to break through previous historical highs. Renowned strategist Michael Hartnett from another major Wall Street bank, Bank of America, said that after years of strong growth, the performance of the US stock market will gradually weaken from early 2025 onwards. The main driving force for the rise in US stocks, the "Big Seven," will no longer provide long-term support for the market, so this strategist advises investors to start investing in the Chinese stock market. Analysts from Deutsche Bank, Peter Milliken, in a report released on February 5, used the concept of "China's Sputnik moment," indicating that China's technological innovation has triggered a "cognitive leap" globally. Silicon Valley investor Marc Andreessen even referred to the release of DeepSeek as an "AI Sputnik moment," symbolizing that the rise of Chinese technology cannot be ignored. (In 1957, the Soviet Union successfully launched the world's first artificial satellite, Sputnik 1, and the "Sputnik moment" became a symbol of a major shift in global competition.) The report pointed out that 2025 will be a year for global investors to reevaluate the Chinese stock market. From textiles, steel, to electronic products, and the rapid rise of new energy vehicles, nuclear energy, high-speed railways, and AI in recent years, Chinese enterprises have shown strong global competitiveness. The market is expected to revalue the "China discount" and drive Chinese A-shares and Hong Kong stocks into a long-term bull market. One of the world's largest hedge funds, Man Group, recently stated that the institution is very optimistic about the investment prospects in the Chinese stock market. Andrew Swan, head of Asian stocks at the institution, stated that technological developmentincluding breakthrough AI technology represented by DeepSeek, and changes in economic models, will have a significant impact on the investment returns in the Chinese market. Since the inauguration of US President Trump, Trump's tariff policy towards China has also become a concern for the investment community. However, Swan believes that the impact of Trump's tariffs on China will be much smaller than eight years ago, and it may be avoided by reaching an agreement.