Source: Brokerage China
Author: Chen Ming

According to the latest news, strategists at Bank of America recommend going long on Chinese Stocks, as they expect that the trade and technology war with the United States will not escalate. Strategists anticipate that after the U.S. stock market stops its continuous rise in early 2025, its leading advantage will continue to wane.

Earlier, Goldman Sachs released a research report stating that the rise of DeepSeek has provided a mid-to-long-term re-evaluation opportunity for Chinese concept technology stocks. Goldman Sachs maintains an overweight rating on $MSCI Chinese Index (LIST2614.US)$ and expects the index to rise by 14% this year, with an optimistic forecast of a potential increase of up to 28%. Additionally, A-shares will benefit from the development of AI software technology, and stocks in the software technology sector will lead the market.

Deutsche Bank also stated that 2025 will be a year for Chinese companies to rise globally, and the phenomenon of undervaluation of Chinese stocks will disappear. The bank mentioned that the bull market cycle for A-shares and Hong Kong stocks began in 2024 and is expected to continue and surpass previous peaks. Recently, Blackrock Debt Strategies Fund Inc also expressed optimism about the Chinese market in the medium term for the next 12 to 36 months, being bullish on Chinese stocks and interest rate Bonds.

Bank of America: Recommended to go long on Chinese Stocks.

According to news from the evening of February 7, Bank of America strategists expect that after the US stock market stopped its continuous rise in early 2025, its leading advantages will continue to fade. Meanwhile, Bank of America recommends going long on Chinese Stocks.

According to Bloomberg, Bank of America strategists, including Michael Hartnett, pointed out that thus far this year, the ROI for stock markets in Brazil, Germany, the United Kingdom, China, and Canada has been higher than$S&P 500 Index (.SPX.US)$, due to the failure of the so-called seven major Technology companies to provide the driving force they have long delivered.

The aforementioned strategists recommend going long on Chinese Stocks because they expect that the trade and technology war will not escalate. Bank of America strategists also pointed out that the narrative surrounding the structural dominance of the US economy over competitors is gradually fading, and investors are also betting on geopolitical stability in the Middle East and Ukraine.

In terms of Bonds, Bank of America expects that US Treasury yields will fall below 4%, as President Trump hopes to address government spending issues and prevent the debt spiral from rising, while also seeking congressional approval for his tax cut plan.

Bank of America supplemented by citing data from EPFR Global, stated that in the week ending February 5, Money Market Funds attracted $46.8 billion, with $16.6 billion inflow into Bonds and $0.6 billion leaving Equity Funds.

Goldman Sachs, Deutsche Bank, and others are optimistic about Chinese Assets.

On Tuesday local time, the latest Research Report released by Goldman Sachs Analyst David J. Kostin pointed out that the rise of DeepSeek signifies the development of the AI Industry, which is shifting from the Hardware infrastructure layer to the Software application layer. This trend provides new opportunities for diversified development in the Global market, especially for the mid-to-long term value reassessment of Chinese Technology Stocks.

The Research Report stated that the growth investment ratio (GIR) of US enterprises is significantly higher than that of other regions globally, especially in the AI sector. However, DeepSeek's R1 model, with a cost of less than $6 million, achieves performance comparable to leading models like GPT-4 and Llama. The more promising growth prospects and technological breakthroughs will significantly enhance productivity, helping to narrow the valuation gap between US and Chinese Technology Stocks or Semiconductors by up to 66%.

Goldman Sachs maintains an overweight rating on the MSCI Chinese Index, expecting that this Index will rise by 14% to 75 points this year, based on the 66 points at the time the report was released, with the optimistic expectation that the increase could even reach 28%.

In terms of A-shares, Goldman Sachs analyzed that A-shares have a relatively high weight in hard technology, but in recent years have also been actively laying out in the AI application field, which is soft technology. Therefore, A-shares will also benefit from the development of AI soft technology, with stocks in the soft technology sector leading the market further. Goldman Sachs emphasizes that China's policy cycle has now transitioned from expectation to implementation phase, with details and actions being key elements for stable growth and supporting corporate profits moving forward, promoting further increases in the stock market.

In addition, Deutsche Bank stated that Global investors will recognize the competitive advantages of Chinese manufacturing and services this year, and the launch of DeepSeek is more like China's 'Sputnik' moment, indicating that the valuation discount of Chinese Stocks will disappear.

Deutsche Bank emphasizes that the current trading valuation of the MSCI Chinese Index is lower than that of the Global Index and is close to the lower end of its valuation range. As Chinese companies expand globally, this valuation discount will revert to a premium at some point, forcing investors to quickly turn to China in the medium term, leading to a situation where it becomes difficult to buy Chinese stocks without raising prices. Deutsche Bank states that global investors generally underweight Chinese Assets and will need to adjust their portfolios in the future to avoid missing out on growth opportunities in the Chinese market.

In addition, Wang Xiaojing, Director of Multi-Asset and Quantitative Investment at Blackrock Debt Strategies Fund Inc and manager of the Blackrock CSI 300 Index Enhanced Fund, stated that there is optimism about the medium-term Chinese market over the next 12 to 36 months, being Bullish on Chinese Stocks and interest rate Bonds. Wang Xiaojing noted that over the past year, the cost of funds has significantly decreased, and the growth of the stock market has not fully reflected the cash flow value brought about by the decrease in the central cost of funds.

Previous monetary and fiscal policy boosts have also provided clear signals to the market, with this trend expected to continue between 2025 and 2026, and policies likely to further strengthen support. After several years of transformation and recovery, the Chinese economy is expected to achieve initial results in new quality productive forces, especially in high-tech manufacturing, with economic growth returning to a virtuous cycle. This state will not only absorb more labor but also promote the formation of larger-scale economic internal circulation.

It is worth noting that the AI model released by DeepSeek has reignited interest in Chinese Technology companies. This Friday, both A-shares and Hong Kong stocks rose significantly, with the Shanghai Composite Index closing up more than 1% above 3300 points, and the Chinext Price Index rising 2.53%. $Hang Seng Index (800000.HK)$ Rise of 1.16%; $Hang Seng TECH Index (800700.HK)$ Rise of 1.80%, up more than 20% from the low in January, entering a 'technical bull market.' $XIAOMI-W (01810.HK)$ and $BABA-W (09988.HK)$ In the Hang Seng TECH Index, the largest weight rose nearly 30% during this period, with both being seen as beneficiaries of AI advancements.

Bloomberg Intelligence strategist Marvin Chen stated that due to the Inflow of onshore investors into Hong Kong technology stocks, southbound capital Inflow rose slightly in January, and this trend may continue due to the Bullish factors surrounding AI.

HSBC Analyst wrote in a report: "Global attention on DeepSeek can stimulate investors to reassess China's innovation capabilities, which we believe could be a catalyst for reassessment of the Chinese stock market this year."

Editor/rice