In recent months, the landscape of global financial markets has been markedly shifted by an unexpected player in the realm of artificial intelligence known as DeepSeekThis Beijing-based company has not only captivated local investors but has also caught the attention of the global investment community, signaling a potential resurgence for Chinese tech stocksIn stark contrast, the Indian market has struggled significantly during this same period, facing an alarming outflow of funds.

Founded in July 2023, DeepSeek rapidly emerged as a formidable force in the AI sectorBy January 2024, they launched their first large language model (LLM), boasting an impressive 670 billion parameters trained on a dataset encompassing 2 trillion tokens across both Chinese and EnglishThis was followed in May by the introduction of DeepSeek-V2, a second-generation model competing closely with the capabilities of GPT-4 Turbo, yet offered at a fraction of the price, earning it the moniker “the Pinduoduo of AI.” Such groundbreaking advancements continue to highlight the robust AI capabilities stemming from China, showcasing an ecosystem rich in innovation.

According to Bloomberg's detailed analysis, global hedge funds have been quick to respond to this emerging narrative, flooding into the Chinese stock market at unprecedented speeds

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Over the past month, a wave of capital poured into both onshore and offshore markets, resulting in an extraordinary increase in total market capitalization by more than $1.3 trillionThe atmosphere surrounding the Chinese stock market is characterized by renewed optimism and activity, starkly contrasting the narrative unfolding in India, which saw a staggering market value evaporation of $720 billion, marking the country’s largest outflow on record.

In this dramatic shift of global capital, institutional investors are making notable adjustments to their portfoliosNumerous funds have altered their investment strategies, decreasing their exposure to Indian stocks while bolstering their holdings in Chinese equitiesFor instance, asset management giants like Eastspring Investments have been proactive in increasing their stakes in the Chinese internet sectorMeanwhile, their reduction in allocations toward what they deem “overvalued” Indian mid and small cap stocks illustrates a decisive pivotThe Asian fund under Man Group has similarly raised Chinese allocations from 30% to an impressive 40%, simultaneously slashing their Indian holdings from 21% to 18%, indicating a robust confidence in China's market.

Eastspring Investments’ Asian equity portfolio specialist, Ken Wong, encapsulated this sentiment, affirming, “DeepSeek’s success underscores that China possesses significant companies that are integral components of the entire AI ecosystem.” This sentiment resonates with many investors who are recognizing that DeepSeek's technological breakthroughs reflect a comprehensive and powerful ecosystem within China’s AI landscape, extending from chip development to application implementation, signifying vast investment potential.

In addition to the excitement surrounding DeepSeek, another key element attracting global investors is the valuation advantage of Chinese assets

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Currently, the MSCI China Index holds a forecasted price-to-earnings ratio of only 11 times, which is less than half that of the Indian index at 21 times, presenting a compelling case for the Chinese stock market in the global asset allocation arenaAndrew Swan, who oversees Asian equities (excluding Japan) for Man Group, further emphasized that upcoming stimulus measures expected from China hold significant weight: “We believe that policy will now pivot towards consumer spending and specifically encourage the transformation of current household savings into actual demand.” This viewpoint indicates that the Chinese market is bolstered not only by technological strength but also by supportive macroeconomic policies, establishing a promising growth outlook.

Despite this optimistic atmosphere, certain investors remain waryHelen Zhu, chief investment officer at Nan Fung Trinity, raised questions regarding the commercial viability of AI technologies: “The medium to long-term profit model remains unclear.” Furthermore, Bloomberg data tracked a technical bull market in the Hang Seng Tech Index, yet indicated that the density of trading in Chinese stocks has surged to a year-high, prompting some institutions to express concerns over short-term overheating risksMorgan Stanley also weighed in, suggesting that the recent pullback in Indian markets has excessively reflected short-term negatives, maintaining that the long-term growth narrative driven by infrastructure investment and manufacturing remains unchanged for the country.

Nevertheless, the shift in market sentiment is undeniableRecent market data shows that Alibaba's market capitalization soared by an impressive $100 billion over the past five weeks, alongside a robust 22% rebound in the Hang Seng Tech Index from its January lows

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