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Home»Finance»Why China’s AI tech rally rests on ‘hot money’
Finance

Why China’s AI tech rally rests on ‘hot money’

February 18, 2025No Comments4 Mins Read
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Why China's AI tech rally rests on 'hot money'
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By Summer season Zhen and Jiaxing Li

HONG KONG (Reuters) – China’s obvious breakthrough in AI and rapprochement with tech giants has despatched Hong Kong shares and web giants hovering, however the consumers behind it are flighty and brokers say world traders are cautious of massive bets whereas markets swing wildly.

Hong Kong’s Grasp Seng (^HSI) has roared again from a run of lean years to vie with Germany’s DAX because the world’s best-performing marketplace for the yr up to now, with features of 13% and 13.1% respectively, towards a 4% rise for the S&P 500 (^GSPC).

Hong Kong tech shares have surged 31% because the center of January to hit three-year highs on Monday, whereas President Xi Jinping sat down with prime tech leaders in Beijing.

Costs gyrating as traders scoured footage and photographs of the assembly for the faces of prime bosses neatly underscored the fevered hypothesis and the diploma of hope behind the rally.

Buying and selling additionally illustrated what has develop into an adage of investing in China lately, that the largest prize goes to the earliest movers, particularly if they’ll get out as quickly because the euphoria begins to fade.

“As with strikes previously two years or so in HK/China, it’s totally retail pushed (and unstable) – a buying and selling market,” stated Wong Kok Hoong, head of fairness gross sales buying and selling at Maybank.

“Hedge funds or the extra Hong Kong-China centric funds are properly conscious of the hazards of not dashing in from the onset.”

Knowledge from brokers appears to point out that’s precisely who’s shopping for.

CICC estimates that cumulative southbound flows – that’s, shopping for by mainland traders – have reached HK$26.6 billion ($3.4 billion) because the Lunar New Yr vacation in early February, on par with a record-breaking rush in September.

A Morgan Stanley word on hedge fund positioning confirmed web exposures close to their highest in a yr, with consumers largely in Asia and taking lengthy positions, fairly than overlaying quick bets.

“Sizzling cash is driving the marketplace for the previous two weeks,” stated Steven Leung, who handles institutional shoppers at brokerage UOB KayHian in Hong Kong, referring to funds managed by traders looking for short-term returns.

The rally’s triggers embody the sudden reputation of Chinese language AI startup DeepSeek, which has developed an AI mannequin far cheaper than U.S. rivals, reduction that China has not been hit with large U.S. sanctions, and the sight of Xi assembly with tech leaders.

Shares in Alibaba (BABA, 9988.HK) have headlined the rally on information of an AI partnership with Apple (AAPL) together with the looks of founder Jack Ma, who has saved a low profile over years of crackdowns on China’s tech giants, at this week’s symposium with Xi Jinping.

The inventory touched a three-year excessive on Monday and is up almost 50% for the yr up to now.

The quantity of Alibaba shares traded in Hong Kong final week was the biggest since itemizing in late 2019 and weekly quantity for its U.S.-listed ADR was the best for 2 years.

“(Jack Ma’s) presence could be vastly symbolic of how the federal government’s stance in the direction of the tech sector has modified,” stated Christopher Beddor, deputy China analysis director at Gavekal Dragonomics in Hong Kong.

“If there’s one particular person related to the tech crackdown, it is Jack Ma…it is roughly a complete reversal of the coverage stance from a couple of years in the past, when officers vowed to curb the ‘disorderly’ growth of capital.”

To make certain, Morgan Stanley (MS) stated in a word final week that world traders had been beginning to reassess China’s investability, after a protracted interval of restricted consideration, although it added that as of late January that they had been underweight.

On Monday, Goldman Sachs (GS) analysts raised forecasts for the MSCI China index to 85 from 75 and there are traders who see a sustainable rally.

Nonetheless, for a lot of the lesson from disappointments after rallies on China’s post-COVID reopening and pledges of stimulus in September has been to maneuver quick and assume short-term.

Maybank’s Wong stated that amongst themselves, retail traders in China say: “The early believers get to eat the rooster; the next ones get to drink the rooster soup; and the late true believers must take over the empty plates.”

($1 = 7.7807 Hong Kong {dollars})

(Reporting by Summer season Zhen and Jiaxing Li in Hong Kong. Further reporting by Ziyi Tang in Beijing and Tom Westbrook in Singapore. Writing by Tom Westbrook. Enhancing by Bernadette Baum)

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