DeepSeek Attracts Foreign Investors' Interest Back Into Chinese Stocks

After two years of absence from the global investment map, the Chinese stock market is witnessing a strong comeback, attracting massive international capital flows. The amount of shares issued in the first quarter of 2025 doubled compared to the same period last year, reaching 16.8 billion USD, marking a significant change in investor sentiment.

International investors flock to China. (Photo: Reuters)

Technology race creates attraction

The shift is being driven by two main factors: the Chinese government ’s loosening of oversight over large tech companies and the rise of DeepSeek, a promising AI company. Last month, a meeting between President Xi Jinping and top tech leaders sent a clear signal of a government-led reduction in its involvement in the sector.

DeepSeek, with its launch of AI products at competitive prices, has created a fever in the global financial market. The emergence of this AI "unicorn" changes the way investors view China's technological potential, and at the same time shows the government's support for private enterprises in this field.

Investor sentiment changes

"Investors have changed their mindset. Previously, many thought China was no longer an investment destination, but now they see it as a re-pricing of the market," said James Wang, head of Asian equity capital markets at Goldman Sachs. " The perception of risk is still there, but the focus has shifted to finding opportunities."

In Hong Kong, the Hang Seng index is up 21% year-to-date, making it the best performing market among major economies .

In terms of price-to-earnings (P/E) ratio, the MSCI China Index is currently trading at 11.7 times, significantly lower than the MSCI US (20.3 times) and the S&P 500 (20.5 times). " China - the world's second-largest economy - is offering international investors a 40% discount to equity valuations compared to other markets, " said Wang.

Chinese companies are also driving the Hong Kong IPO market. IPOs in the first quarter totaled $1.47 billion, more than double the amount in the same period last year. Most of the big deals are expected to be secondary listings of mainland companies. Battery maker CATL, for example, has filed for a Hong Kong listing, hoping to raise at least $5 billion.

"With strong support from both the mainland and Hong Kong governments, and policies encouraging A-share companies to list in Hong Kong, the recent buoyancy of Hong Kong's stock market is likely to persist," said Victoria Lloyd, an adviser at MinterEllison.

Khanh Huyen ((Source: Reuters))

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