According to Zhitong Finance APP, with the comprehensive rise of China's AI startup DeepSeek and its leadership in a new 'AI large model computing power paradigm' centered on 'extremely low cost' and 'high energy efficiency', DeepSeek is beginning a deep integration with industries such as Medical, Finance, and Education, as well as AI innovative products/services brought by applications like Consumer Electronics. This is expected to drive the sales and operating profit of China's Semiconductors, Saas Software, Cloud Computing, and even all industries into a new growth paradigm, ultimately boosting global investors' bullish sentiment towards the Chinese stock market, especially in Technology stocks. Looking at the investment returns of global hedge funds this year, since 2025, the secret to outperforming their peers' average level or benchmark stock index seems to only have one principle: allocate in Chinese technology stocks.

Statistics show that last month, driven by DeepSeek and Unitree Robotics' joint push for the AI investment frenzy in China, the tech stocks strongly led to a sustained rise in the Chinese stock market (including Hong Kong and A-shares), especially covering.$Alibaba (BABA.US)$、 $TENCENT (00700.HK)$ and $XIAOMI-W (01810.HK)$ Including$Hang Seng TECH Index (800700.HK)$Since February, there has been a surge of nearly 30%, significantly improving the ROI of several hedge funds and long-only funds that are allocated to Chinese technology stocks.

DeepSeek has launched an open-source AI large model that is extremely low-cost and performs on par with OpenAI's flagship inference model, while Yushu Technology showcased its leading humanoid robot technology, both igniting global hedge funds' enthusiasm for investing in the Chinese stock market. The MSCI Chinese Index soared nearly 12% in February and continues its upward trend this month, with leading stocks expected to benefit from the widespread application of these technologies.

The MSCI Chinese Index has entered a 'technical bull market,' with this benchmark index covering core Chinese assets such as Alibaba, TENCENT, Kweichow Moutai, and China Yangtze Power, currently hovering around 77 points, while the CSI 300 Index is around 3940 points. According to Goldman Sachs' forecast for increases, these two indices have room for upward movement, with Goldman Sachs' research team raising the target points for the MSCI Chinese Index and the CSI 300 Index to 85 points and 4700 points, respectively.

This year, the Market Cap of China's Magnificent 7 has surged to 439 billion US dollars, making once-invincible American technology counterparts seem unreachable, with some investment institutions indicating that there is further room for the excellent performance of Chinese technology stocks to expand.

The equal-weight stock basket indicator of the seven Chinese technology giants such as Alibaba and TENCENT (referred to as the 'Magnificent 7' by Société Générale) has risen more than 40% this year. In contrast, the stock index measuring the Magnificent 7 of the US stock market has declined by about 10%, and the sharp drop in this index has also impacted many hot technology stocks.$NASDAQ 100 Index (.NDX.US)$After a significant correction, this index has fallen over 5% since the beginning of the year, and the sharp decline of the Magnificent 7 has caused the investment returns of some hedge funds heavily invested in them to far lag behind those betting on Chinese technology stocks.

This sharp reversal was rarely anticipated by investment institutions on Wall Street at the end of last year. Earlier this year, the Nasdaq reached a historical high, while Chinese technology stocks were still impacted by years of regulatory pressure and less attractive technology compared to their American counterparts. However, almost overnight, DeepSeek and Unitree Technology have changed the perception that China would need years to catch up to the USA's dominance in AI and Robotics.

Multiple hedge funds that chose to buy Chinese technology stocks have greatly increased their returns.

Driven by strong performance in the stocks configured for Chinese technology, several hedge funds including Triata, Viridian, Aspoon, Red Gate, and Keywise achieved investment returns far superior to their peers in February, with some companies recording their best monthly performance since inception, thanks to their large positions in Chinese AI-related software companies, data center operators, and humanoid robotics companies.

The founder of Keywise Capital Management Ltd. in Hong Kong stated, 'The Chinese stock market may be reassessed by the market this year. DeepSeek and Unitree are prompting people to reevaluate the development prospects of China's technology.'

Triata Capital

Media reports citing informed sources indicate that this Chinese hedge fund achieved a return rate of 39% in February, mainly benefiting from bullish bets on Chinese AI software and data center stocks. Chief Investment Officer Sean Ho began his career at global quant trading giant Susquehanna and built alternative data systems at Hong Kong's Tybourne Capital Management before founding his own company.

Informed sources said that Triata utilized alternative data from corporate recruitment activities to buy Chinese data center operators in the range of $5-6 in the first quarter of 2024. $GDS Holdings (GDS.US)$ Last year, when selling minority stakes, GDS Holdings was valued at approximately $3.86 per ADR, indicating that the market significantly underestimates the demand potential for China's AI software and infrastructure. The stock price of GDS Holdings soared above $40 in February. In addition, Triata, which manages over 1 billion dollars in Assets, also holds Technology companies in the Cloud Computing Service and generative video fields.

Viridian

Pascal Guttieres, the Chief Investment Officer from Viridian Asset Management, revealed that the fund recorded approximately 6% returns in February (the best since its successful operation started last August) by participating in Hong Kong-listed companies.$ROBOSENSE (02498.HK)$、 $XTALPI-P (02228.HK)$ and$BLACK SESAME (02533.HK)$Profits are made from the additional issuance by Chinese technology companies.

The pricing of these issuances is often significantly lower than the market value at the time, providing a good opportunity for equity capital market funds like Viridian to profit when stock prices rise. Viridian, which manages $0.13 billion, will launch a new agreement to manage $0.2 billion for U.S. investors this month, with the scale expected to reach $0.4 billion by the anniversary.

Aspoon Capital

Informed sources indicate that this fund, which has invested in China's AI-related technology stocks last year, saw a 4.8% increase in February returns, with a full-year return of 58% in 2024. In the investment letters sent to investors in December and January, the institution declared the arrival of the "China ChatGPT moment," believing that this round of market activity is more sustainable than last October.

Aspoon, led by Ryan Yin from Tiger Pacific Capital, pointed out that although DeepSeek cannot monetize all the traffic and attention it gains, the two giants—Alibaba and ByteDance—have very ample resources to achieve this goal, thereby completely activating a new cycle of AI spending and infrastructure, much like the surge in stock price and valuation experienced by Amazon and Microsoft in the U.S. stock market two years ago.

Alibaba's stock price has skyrocketed over 70% in the Hong Kong stock market this year. Compared to the large-scale construction of AI infrastructure in the USA that began in 2023, the relevant infrastructure construction process in China is relatively late. Moreover, with DeepSeek integrating into various industries and the huge AI inference computing power demand brought by a massive C-end customer base, the current prevalent theory of "computing power resource surplus" in the U.S. stock market may not appear in the Chinese stock market for quite some time. This is also the core logic behind the significant influx of international funds into Hong Kong stocks and A-shares recently.

In the Hong Kong stock market, the optimistic sentiment anticipating a "long bull market" is even more fervent than in the A-share market. Benefiting from the Federal Reserve's interest rate cuts and the liquidity support provided by domestic monetary stimulus policies, the Hong Kong stock market has been reaping the "double liquidity dividend" of both China and the USA since last September. Recently, following DeepSeek igniting the investment frenzy in China's AI sector, the Hong Kong stock market, as a gateway for foreign investment in the Chinese market, has become the best entry point for external asset management institutions, such as hedge funds, to invest in Chinese companies.

Red Gate

According to data from Institutions, the Red Gate China Growth Fund (long-only type) saw an 8% increase in investment returns in February, driven mainly by Chinese high-end manufacturing and IT stocks. The research team from the institution stated in an email that the demand for robots will surpass the total of electric vehicles and mobile phones, with a market scale reaching trillions of dollars. Chinese and Global robot manufacturers will begin mass production this year, and it is recommended to focus on parts suppliers, as those with low-cost mass production capabilities will win. However, the team reminded that the heat of humanoid robot concept stocks may cool off, as valuations have already factored in actual applications and orders, emphasizing that the initial focus should be on identifying future winners and the entrepreneurs and technologies behind them, rather than just on valuation.

In the field of AI, the WeChat application under TENCENT is currently testing the integration of DeepSeek's AI large model into its Search Engine. Red Gate's analysis indicates that it can expand into various service functions in E-Commerce and lifestyle.

The team also wrote that Alibaba recently announced plans to invest more in AI in the next three years than in the past decade, which "demonstrates a shift in the management's mindset." It "indicates that a number of private enterprises are transitioning from economic winter to actively engaging in business activities."

Keywise

The Keywise Penguin Development Fund estimated a 5.9% increase in returns in February, primarily from tech stocks in the Hong Kong stock market. Keywise manages approximately $2.5 billion in assets and has increased its shareholding in China's leading cloud service providers Alibaba and TENCENT; the institution also bought shares in Trip.com, believing that the company can leverage AI to enhance travel planning and customer service.

The institution believes that XIAOMI-W and BYD also possess AI-driven transformation potential. About ten years ago, Keywise began laying out its investments in trends such as new energy, electric vehicles, AI, and the Robot Concept, currently managing approximately $2.5 billion in assets. Most of Keywise's investments are in the USA and China's stock markets.

Is the Chinese tech stock frenzy continuing?

For Hong Kong stocks and A-shares, the epoch-making 'ultra-low-cost AI big model' launched by DeepSeek has already become an unprecedented 'bull market catalyst' for global investors to reassess Chinese assets, who were previously concerned about the increasingly high valuations of American technology stocks. The emergence of DeepSeek can be said to have completely ignited global funds — including leveraged hedge funds and traditional asset management giants, around an unprecedented investment frenzy in China's AI sector.

Charu Chanana, chief investment strategist from Saxo Markets, stated: 'The success of DeepSeek, along with a series of AI models launched by Chinese technology companies, reminds the world that despite the USA's restrictions on chip exports, China's innovative strength should not be underestimated.' 'Considering the valuation discount, there is considerable room for growth for Chinese technology stocks.'

French Industrial Bank has listed a number of Chinese companies based on their market cap and growth trajectory, among which are the so-called seven major Chinese technology giants: $TENCENT (00700.HK)$ 、 $BABA-W (09988.HK)$ 、 $XIAOMI-W (01810.HK)$ 、 $BYD COMPANY (01211.HK)$ 、$SMIC (00981.HK)$、 $JD.com (JD.US)$ And$NetEase (NTES.US)$. According to a report released on February 28 by the agency's market strategist Frank Benzimra and others, the overall expected PE of this basket of stocks is only 18x, a discount of more than 40% compared to the US 'Magnificent 7'.

The Hang Seng TECH Index rose more than 2% on Friday, with a weekly increase of about 10%. This index has now reached its highest level since the end of 2021. Despite this significant increase this year, the Hang Seng TECH Index is still about 40% lower than its peak in 2021. The index's return over the past five years is only 18%, a small fraction of the more than 130% increase of the NASDAQ 100 Index during the same period.

With Donald Trump returning to the White House, shaking the global trade order with a series of tariffs and making American businesses and consumers uneasy, the notion of an unstoppable rise of the US stock market as part of the 'American exceptionalism narrative' is being challenged. The strong upward trend in stock prices of major US tech giants led by NVIDIA, Microsoft, and Google has encountered significant obstacles as investors question the validity of these companies' high valuations and the reasonableness of their substantial AI expenditures, demanding they provide more earnings surprises and clearer monetization paths for AI.

Especially since the emergence of the DeepSeek-R1, which combines both 'low cost' and 'high efficiency' tags, the logic of 'Magnificent 7' tech companies leading the US stock market has fundamentally changed, with investors beginning to strongly question the reasonableness of the US tech giants' seemingly fervent AI spending plans. Aside from Meta, the stock performance of other giants has significantly underperformed the S&P 500 Index, becoming the most crucial negative catalyst for slowing the entire US stock market's rise.

When comparing China's seven giants—Tencent, Alibaba, Xiaomi, BYD, Semiconductor Manufacturing International Corporation, JD.com, and NetEase—to the "seven giants" of the USA stock market, the performance growth of China's seven giants is much cheaper in terms of valuation. A research report released by Societe Generale shows that after regulatory tightening in the Internet sector, the valuation of China's "seven giants" has almost decreased by 50%, and since then, the forward PE ratio has remained in a narrow range between 14x and 20x. Despite a recent rebound in stock prices, this group has not reached the upper limit of the range from the past three years and is still about 10% lower than the average level of the past five years.

The valuation premium of China's tech 'Magnificent 7' has decreased from 115% before 2021 to about 55% now, still about 20 percentage points lower than the average premium over the past five years. Compared to the US 'Magnificent 7', there exists a greater degree of valuation discount, currently about 45%.

Vey-Sern Ling, managing director at Union Bancaire Privee, said: 'The necessary driving factors for the outstanding performance of Chinese tech stocks are now in place, including high-level government support, expectations of profit recovery, and the structurally growth theme driven by AI. US tech stock valuations have expanded significantly for two consecutive years, and disappointing earnings data and macro factors from the 'stagflation' expectations are driving the sell-off, which has to some extent prompted rotations from the USA to Europe and China.'

The other side of hedge funds: focusing on strategies with the 'Magnificent 7' of the US stock market yields disappointing returns.

Due to significant volatility in the US stock market, the momentum of key trades was reversed, severely impacting US tech stocks, especially the so-called "Magnificent 7" - Apple, Microsoft, Google, Tesla, NVIDIA, Amazon, and Meta Platforms. The returns of Millennium Management, Citadel, and other top hedge funds in February were mediocre, trailing behind the S&P 500 Index and their peers' averages.

"The Magnificent 7" have been the core drivers of the S&P 500 Index and NASDAQ 100 reaching record highs since 2023, but this year, except for Meta, they have become significant drag on hedge fund returns.

JPMorgan Analysts pointed out in a report to clients that the volatility from the end of January to February "raised many questions among investors regarding hedge fund performance." The analysts added that overcrowded positions in technology, media and telecommunications, along with some consumer goods stocks, led to "poor performance for certain funds."

The S&P 500 Index fell 1.4% in February, with an annual increase of only 1.2% as of February, lagging behind the Eurozone Stoxx Index and MSCI Chinese Index by more than 10 percentage points in the first two months of this year.

The market turbulence caused by the plummet of US tech stocks also affected major macro hedge funds. Said Haidar's Haidar Jupiter Fund saw an investment return drop by 6.3% in February. Brevan Howard's BH Master fund fell 1.6% in February, down 4.5% since January 1. Its BH ALPHA Strategies performed relatively well, rising by 0.7% in February and 2.25% year-to-date, but it is far behind the overall returns of hedge funds buying Chinese tech stocks.

Editor/new