Fidelity International: The current rise in the Chinese stock market is different from before, AI development may be the most important factor.

Fidelity International Fund Manager George Efstathopoulos stated that the recent rise in the Chinese stock market is different from before, and the emergence of Chinese AI and DeepSeek may be the most important factor, as it not only reflects improvements in the fundamentals but also provides new opportunities. Looking back at 2024, the Chinese stock market outperformed most stock markets outside of the United States in terms of returns. However, investors have a different impression, as the Chinese stock market experienced volatility last year and was one of the most volatile markets. At the beginning of 2024, the Chinese stock market underwent a deep adjustment, followed by two strong short-term rebounds in the first half of the year and September after the introduction of new policies, mainly driven by market expectations. Since 2025, the Chinese stock market has had a strong performance, prompting investors to consider whether this rise is different from before, and he tends to agree with this view. Since the introduction of minor fiscal stimulus measures in the fourth quarter of 2024, economic data has improved. Although the process of policy improvement is gradual and uneven, the monetary and fiscal policy stances in mainland China have clearly shifted. This includes significant boosts from consumer subsidies, indicating to policymakers and the market that, despite weak consumer confidence, fiscal stimulus measures have a significant impact on consumers. More supportive policies are needed to sustain this momentum, and mainland China has indicated that more measures will be introduced. The real estate market is another factor to consider. With policy support, the real estate market has gradually improved, showing signs of improvement in the past few months, indicating that the most difficult period in the deleveraging cycle has passed, and potential tail risks have been mitigated. Although the market has been concerned about trade conflicts, the announced tariffs have not reached a worrisome level and have not caused significant disruptions. The impact of the tariffs in the Trump 2.0 era may be more evident outside mainland China. January credit data in China for 2025 shows a good start to the market, with credit growth exceeding market expectations and policy support continuing to increase. Meanwhile, the rise of Chinese AI and DeepSeek is shaking the view that mainland China lags far behind the United States in technology, once again making investors aware that China has the ability to innovate and demonstrate it through action. This helps boost market confidence and significantly changes the sentiment regarding the investment value of the Chinese market. Fidelity believes that Chinese AI can not only drive corporate profitability and productivity improvements but also promote employment. In a recent meeting between the mainland Chinese government and private tech companies, it was revealed that they are actively promoting the "new productive forces," which is expected to open a new chapter in technology in mainland China. In summary, the driving factors behind this round of increase are significantly different from previous ones. Among them, the development of AI may be the most important factor, as it drives improvements in the fundamentals and provides new opportunities. This time, fundamentals play a key role instead of solely relying on market expectations. However, the role of market expectations should not be underestimated. Fidelity believes that if more fiscal measures are announced during the two sessions, market confidence will continue to strengthen. The expansion of fiscal deficits will increase government spending, and the rebound in credit impulses will help alleviate deflation concerns, further promoting a reevaluation of the valuation of the Chinese mainland stock market. In an environment of rising global trade protectionism, mainland China cannot rely solely on exports but needs to stimulate domestic demand and launch its "second engine" of the dual circulation pattern. This will not only help alleviate the adverse effects of tariffs but also help rebalance the economy, effectively address deflation pressures, and achieve a more sustainable growth model. In addition, amid the changing global trade landscape, strengthening the Chinese consumer market can also balance the dominance of US consumption. The strong performance of the US economy and its unique advantages are mainly driven by its leading position in technology and the strong US consumer market, which accounts for nearly one-third of global consumption. The emergence of DeepSeek in the field of artificial intelligence has shocked the world and highlighted the ability of mainland China to compete at the top level in the technology field. If mainland China implements fiscal and monetary policies to stimulate consumption, it may narrow the consumption gap and attract countries seeking new trading partners. Essentially, mainland China holds the key to using fiscal policy to counter internal deflation pressures, rebalance the economy, and create more sustainable local growth.