DeepSeek’s advancements in AI have led to a significant uptick in Chinese equity markets, with a 26% rise since January. This shift coincides with India’s underperformance as it grapples with economic slowdowns. While Chinese stocks, particularly in tech, have surged, experts warn of potential volatility amidst economic uncertainties in both regions.

DeepSeek’s recent advancements in artificial intelligence have fueled a notable increase in Chinese equity markets. The overall value of onshore and offshore Chinese shares has surged over 26% since January’s lows, while Indian stocks have struggled, prompting a migration of investments from India to China. This transition has been underscored by Thio Siew Hua of Lion Global Investors, who remarked, “Every time the China market goes up, the India market goes down.”

Chinese equities, particularly in the technology sector, have experienced a revival after a prolonged downturn. The CSI 300 index, which suffered negative returns for three consecutive years, rebounded with substantial gains in the past year. In contrast, Indian markets have also performed well over the past nine years; however, their returns for 2024 remain disappointing. Investor sentiments reflect a need for reallocating resources from underperforming areas.

The surge in Chinese stocks can be attributed to a significant tech rally following the introduction of DeepSeek’s R1 model, challenging established U.S. AI entities with promises of both superior efficiency and lower costs. Consequently, the Hang Seng Tech Index climbed to its highest level in nearly three years. In the same vein, the MSCI China Index has gained approximately 18% year-to-date, while the MSCI India index has declined over 7%.

Alex Smith from Abrdn highlights the strategic shift toward Chinese equities as a response to promising market narratives surrounding the launch of DeepSeek. This reallocation is resulting in increased bullish sentiment for Chinese models like DeepSeek’s R1 and Alibaba’s Qwen 2.5, showcasing domestic firms’ capabilities to enhance performance while minimizing costs. However, the narrative on the Indian market reflects economic challenges.

India’s economy is experiencing a slowdown, with GDP growth stagnating at 5.4%, marking the least growth in seven quarters and leading to lowered economic projections for the current fiscal year. Data from Nomura shows that as of January, global emerging market funds have become more favorable towards Chinese equities, with a rise from 26% to 33%, while decreasing investments in India.

Portfolio managers, such as Nicole Wong from Manulife, have also shifted their allocations, favoring Chinese markets over Indian equities, indicating a change in investment strategy driven by recent market trends. Despite previously robust performances, India’s equity momentum now faces challenges as some investors seek more favorable opportunities elsewhere.

Post-pandemic investor sentiments shifted away from China towards India, demonstrating a significant market flow change as conditions have altered. Historical data indicates that while Indian indices had performed remarkably in previous years, the recent trend suggests a retreat for South Asian equities. Smith notes that upcoming stimulus measures in China under current geopolitical tensions will play a crucial role moving forward.

While enthusiasm for the Chinese markets is rising, caution is advised, as economic recovery indicators remain uncertain. Wong suggests it is premature to declare a complete recovery of consumption in China. Liu of Clearnomics cautions that ongoing trade tensions, financial system volatility, and other domestic issues could contribute to a turbulent stock market in 2025. The Indian market still presents opportunities, particularly among well-performing large-cap sectors.

In summary, recent developments reveal a significant reallocation of investments from India to China, driven by advancements in the Chinese tech sector and economic shifts. The current landscape in both markets underlines the importance of strategic decision-making and underscores the necessity for prudent investment approaches amid prevailing uncertainties in both countries’ economies.

The migration of investments from Indian to Chinese equities is notable, showcasing the impact of recent advancements in artificial intelligence. As Chinese stocks flourish, driven by a tech rally and investor optimism, Indian markets face economic challenges leading to diminished performance. Investors are advised to proceed with caution, as uncertainties in both markets remain prevalent, and opportunities still exist in select sectors.

Original Source: www.cnbc.com

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