To The Moon

China's Terrific Ten Are Beating Mag 7. Will the Current Momentum Carry On?

The $HSI(HSI)$   soared to its highest level since February 2022 last Friday. Despite ongoing volatility in U.S. tech stocks, the index has surged by 23.08% since the start of the year. Leading the charge are the 'Terrific Ten,' a group of major Chinese tech firms including $Tencent Holding Ltd.(TCEHY)$  , $Alibaba(BABA)$  , and $SMIC(00981)$  , which have outpaced the Magnificent 7 in gains since early 2024.

Following a remarkable surge in tech stocks, Chinese President Xi Jinping chaired a meeting on Monday with several leading entrepreneurs, including Alibaba co-founder Jack Ma. The gathering also included notable figures such as Huawei's Ren Zhengfei, Tencent's Pony Ma, and Liang Zhengfeng of DeepSeek, among other business leaders.

Despite a slight drop in Hong Kong tech stocks, which fell by 0.49% on Monday, analysts view the meeting presided over by President Xi with top entrepreneurs as a positive indicator. This high-level engagement is interpreted as Beijing's effort to boost the entrepreneurial spirit, potentially setting as the catalyst for a blistering China rally in the long-term period.

Bloomberg Intelligence's Robert Lea noted that this high-profile meeting underscores the government's clear support for the tech industry as a key economic growth engine. Similarly, Steven Leung from UOB Kay Hian viewed it as a friendly signal between the government and the private sector, predicting a further AI-driven market rally and improved market sentiment.

The forthcoming key drivers for the Chinese stock market primarily consist of the upcoming earnings season and the Two Sessions scheduled for March.

China Tech Need Earnings Guidance to Keep Sentiment Upbeat

The forthcoming tech earnings are pivotal in maintaining market enthusiasm. DeepSeek's notable performance has propelled investors to actively seek tech investments in both domestic and international Chinese markets. Alibaba, whose stock has risen sharply this year, is among the notable Chinese tech companies set to disclose earnings this week.

China's top-eight tech giants are enjoying a positive outlook for 2025, with their earnings forecasts having increased by over 7% on average since mid-2024, bolstered by the confidence from September's economic stimulus. Industry leaders like Xiaomi, JD.com, and Meituan have raised their profit expectations. Xiaomi's robust electric vehicle (EV) sector has led to a 35% increase in its profit outlook since the second quarter of 2024, propelling its shares to record highs. JD.com and Meituan have also seen their profit estimates rise by 28% and 14% respectively, while Tencent and Alibaba experienced more modest increases of 6% and 2.8%. Conversely, forecasts for Baidu and Pinduoduo have declined by 15%.

Although DeepSeek's surge has not significantly altered the fundamental outlook for 2025 for major tech firms, the initiation of fourth-quarter earnings this week could drive analysts to revise their forecasts upwards to match recent price increases, according to Bloomberg.

China's Annual Two Sessions Approaching

Looking ahead, China's annual parliamentary meeting, the Two Sessions, starts on March 5, 2025. This key event, where policy goals and economic stimuli are discussed, is closely monitored by investors for indications of China’s strategic directions in various sectors. As these sessions draw near, market focus will likely intensify on domestic policy shifts and potential economic measures like adjustments to the reserve requirement ratio(RRR) and strength of fiscal policy.

Historical trends suggest that the Chinese stock market could see significant activity around the Two Sessions due to optimistic investor expectations.

How Analysts Weigh in on China Stocks?

As investors closely monitor the upcoming events, additional insights from analysts further shape the market outlook. Deutsche Bank analyst Peter Milliken in his report noted that China's disruptive innovations are transforming the competitive dynamics across industries. He predicts a gradual elimination of the "valuation discount" on Chinese stocks, emphasizing that "2025 will be a critical year for the global investment community to reevaluate China's international competitiveness."

Invesco's Chief Investment Officer for Mainland China and Hong Kong, Ma Lei, highlighted that DeepSeek has managed to achieve competitive performance comparable to leading international artificial intelligence counterparts at significantly lower costs. This achievement has positively influenced market sentiment. The key question is whether DeepSeek will serve as a catalyst for a reevaluation of the Chinese stock market. Ma Lei expressed confidence that DeepSeek would introduce numerous advantages, including lowering the barrier for various industries to adopt AI, enhancing efficiency, and benefiting many listed Chinese companies, potentially leading to a reassessment of their stock values.

HSBC also holds a positive view on DeepSeek's impact, citing its technological advancements and cost benefits as uplifting investment sentiment within the growth sectors of the Chinese stock market. Areas such as AI applications, computational power, and humanoid robots are increasingly becoming areas of focus. With the momentum provided by DeepSeek, AI-related sectors are poised to become one of the highlights in the Chinese stock market during the first quarter of 2025.

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