Online Reporter
A $439 billion rally in Chinese tech megacaps this year has left their once-unbeatable US peers in the dust, an out-performance that many investors say has room to extend.
An equal-weighted basket of China’s seven tech heavyweights including Alibaba Group Holding and Tencent Holdings — dubbed the “7 titans” by Societe Generale SA — has gained more than 40 percent this year. That compares with an about 10 percent drop in an index of the Magnificent Seven stocks, whose slump has also pushed the Nasdaq 100 Index to the brink of a correction.
It’s a sharp reversal of fortunes that few in Wall Street saw coming. Earlier this year, the Nasdaq gauge had notched yet another record, while Chinese stocks were still marred by years of regulatory crackdown and a tepid consumption recovery. Then almost overnight, DeepSeek upended the perception that it will take years — if ever — for China to catch up to the level of America’s AI supremacy.
Chinese tech stocks have been on a tear since then, prompting even long-time skeptics to turn optimistic. The rally received another push this week following Beijing’s plan to step up support for tech companies and a spate of new AI tools from the likes of Alibaba.
“The DeepSeek success, followed by a suite of AI models from China, has reminded the world that China’s innovation prowess should not be underestimated despite the chip export restrictions from the US,” said Charu Chanana, chief investment strategist at Saxo Markets. “The momentum in the China AI plays has room to run, given the valuation discount.”
SocGen named the Chinese cohort, which also includes Xiaomi Corp., BYD Co., Semiconductor Manufacturing International Corp., JD.com Inc. and NetEase Inc., based on their market cap and growth trajectory. The basket currently trades at 18 times forward earnings, a discount of more than 40 percent to the Magnificent Seven, according to a Feb 28 note by strategists led by Frank Benzimra.
The Hang Seng Tech Index gained more than 1 percent on Friday, taking this week’s advance to about 10 percent. The gauge is trading its highest since late 2021.
US Vs China
While things appear to be coming together for Chinese equities — once deemed “uninvestable” — US stocks are suffering from a multiple whammy of hits.
The notion that the US equity rally will be unstoppable, as part of the US exceptionalism narrative, is being shaken as President Donald Trump convulses the global trade order and unnerves American businesses and consumers with a swathe of tariffs.
A multi-year run in US big tech stocks, led by Nvidia Corp., has hit a stumbling block as investors question the validity of their sky-high valuations and demand ever more in earnings surprises.
Despite the burst of optimism over China, the country’s long-term track record of negative market returns, unexpected policy twists and rising geopolitical tensions under Trump are keeping some investors on the sidelines.
The Hang Seng Tech Index remains about 40 percent below its 2021 peak even after this year’s gains. Its five-year return, at about 18 percent, is a fraction of the Nasdaq 100’s more than 130 percent rally during the period.
Still, with concerns growing over the frothiness of US stocks, China has become a viable alternative for many investors.
“The necessary drivers are there for China tech to outperform, including top level government support, recovering earnings, and structural growth theme in AI,” said Vey-Sern Ling, a managing director at Union Bancaire Privee.
“US tech valuations have run up for two years and now earnings disappointment along with macro factors are driving a selloff,” and that is partly “driving a rotation from US to Europe and China.” — Bloomberg
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