WE THINK: China Has Embarked on a New Wave of Technology Investment

In February, Chinese assets surprisingly led the global capital markets in performance, with the Nasdaq Index falling by -3.97% during the same period. The Wind All-A Index, Hang Seng Index, and Hang Seng Tech Index rose by 4.74%, 13.43%, and 17.88%, respectively, showing a clear pattern of "East rising, West falling." Particularly, the Hang Seng Tech Index had already risen by 25.5% year-to-date by the end of February. At this juncture, continuing to debate whether the market is in a bear or bull phase seems somewhat unnecessary. If you take a closer look at the Hang Seng Tech Index's performance, from its low of 2984 at the end of January 2024 to 6085 by the end of February, the index has more than doubled, making it undeniable that the Hang Seng Tech Index is in a bull market! Is there still room for debate? 

On the international stage in February, the new U.S. president's relentless work ethic led to a series of dramatic events, keeping the media busy.  News outlets, which are usually worried about a lack of stories, found themselves overwhelmed by the president's frequent actions, with journalists even hoping he would take a break to give them some breathing room. The U.S. threatened to impose tariffs on Canada, Mexico, and the EU; Elon Musk, the U.S. Efficiency Minister, initiated multiple rounds of layoffs; Vance's speech at the Munich Security Conference shocked European allies, and the chairman's emotional closing remarks moved the audience to tears. The new U.S. administration has made a 180-degree shift in its diplomatic stance toward Russia and Europe, with U.S. and Russian diplomatic teams bypassing Ukraine and Europe to negotiate a peace agreement directly in Riyadh. On March 1, Zelensky's heated debate with Trump and Vance at the White House left global onlookers stunned...

As the world undergoes unprecedented changes, with the rise of Chinese stock markets and fall of the U.S. stock markets, this edition of WE THINK explores the impact of these new international dynamics on us. Why is the Hang Seng Tech Index leading this rally? Is there still room for Hong Kong stocks to rise? These are the topics we will delve into.

Trump Embraces Putin Unconditionally, Potentially Reshuffling the Great Power Alliances

Before January 20th, the global power dynamics were as follows: the U.S. and the EU were staunch allies, united in imposing comprehensive sanctions on Russia due to the Ukraine war, effectively excluding Russia. Meanwhile, they distanced themselves from China, leaving China and Russia with no choice but to grow closer. With Trump 2.0, it seems the U.S. is now determined to embrace Russia. However, due to the war, the EU and Russia remain at odds, making it difficult for Europe to accept this sudden shift. Facing this betrayal by the U.S., Germany, in the midst of an election transition, has a caretaker government unable to make major decisions. However, the leader of the largest party in parliament, Merz, has pledged full support for Ukraine and the establishment of an independent European army to take charge of Europe's security and defense. Over the past weekend, leaders from over a dozen European and EU countries, along with Ukraine and Canada, met in London to discuss Ukraine and European defense issues. British Prime Minister Starmer announced a four-step plan agreed upon by all parties to support Ukraine, including providing export financing for Ukraine to purchase air defense missiles. The UK is prepared to join other nations in supporting a peace agreement by deploying "ground and air forces."  European powers are making strong statements, indicating that even if the U.S. abandons them, Russia will not easily achieve a complete victory.

In the past, the EU, under pressure from its alliance with the U.S., cooperated in suppressing China's high-tech sector. With the U.S.-EU alliance now fractured, is it still necessary for the EU to continue blocking China's high-tech industry? Does Europe's push for stronger defense also require support from China's manufacturing sector? The great power alliances may be reshuffled. The current UK Labour government has a pro-China inclination, and if China responds appropriately, a new golden era between the EU and China could emerge. Remember, the lithography machines China desperately needs are not in the hands of the U.S. but in the Netherlands. If this happens, could it be a sign of China's rising fortune?

The New U.S. Administration's "Chaotic Reforms" Increase the Risk of Economic Recession

After taking office, the new U.S. administration aims to significantly reduce spending and layoffs, and impose tariffs to address the government's rising fiscal deficit and debt. However, such drastic measures come with side effects. Residents, businesses, and society need time to adapt to these policy shifts. Governing a large country is like cooking a small fish; the U.S., despite being the world's largest economy, is undergoing a grand social experiment under Trump and Musk, the outcome of which remains uncertain. Some economists and investors have already expressed concerns.

Large-scale government layoffs will inevitably affect employment data and consumer confidence. On the other hand, while canceling government orders may save costs and reduce the deficit, it also impacts corporate revenues, profits, and employment. This may be a case of short-term pain for long-term gain, but the short-term "pain" is unavoidable.

Additionally, tariffs on Canada, Mexico, and Europe will disrupt the supply chains and pricing of U.S. companies that rely on imports of auto parts and intermediate goods. Retaliatory measures from these countries will further disrupt production and sales. The U.S. stock market initially reacted negatively to these tariff announcements, leading to a temporary suspension of the tariffs. However, with recent talks of reinstating them, U.S. businesses are likely feeling exhausted by the uncertainty.

Since 2008, the U.S. stock market has experienced its longest bull run, with robust asset prices making the U.S. economy the envy of the world. The semiconductor boom driven by ChatGPT in recent years has also been significant. However, asset prices are now teetering, and the semiconductor industry's rapid growth is losing steam after DeepSeek's open-source model leveled the playing field. As we asked our team in Q3 2024: Do you think the Chinese stock market will still have cycles? Our answer now is: Don't believe any economy can eliminate cycles! Don't believe in a stock market that only goes up! If Trump continues his grand experiment, a U.S. economic recession is highly likely!

China is Entering a New Wave of Entrepreneurship and Technology Investment Thanks to Breakthroughs in Large Models!

The recent rally in the Hang Seng Tech Index and the strong performance of AI and robotics-related stocks in the A-share market have given investors a sense of a long-awaited bull market. After the Spring Festival, many entrepreneurs I've spoken to seem to have undergone a significant shift in mindset. The consensus is clear: the main driver of this change is China's breakthrough in large model technology!

Tech companies are the most sensitive to these changes. Alibaba, China's leading cloud computing provider has seen its share price rise sharply after announcing its fourth-quarter 2024 earnings report. Investors were not only reassured by the stabilization of sales but also by the recovery of its cloud computing business. Management has also indicated plans to significantly increase capital expenditure, going all-in on AI. Our team has conducted extensive research across various industries and companies, and the common theme is that businesses are racing to embrace AI, fearing that their competitors might outpace them in leveraging AI to disrupt their industries. Even in our own fund management industry, during a recent dinner with two executives from public funds, we learned that every fund company is actively deploying AI locally, increasing IT budgets, and hiring AI talent.

Just as the successful launch of ChatGPT in November 2022 spurred a surge in capital expenditure among U.S. tech giants, we are now seeing a similar trend in China following DeepSeek's open-source release. With the growing demand for applications, domestic internet giants are significantly increasing their capital expenditure plans for this year and next. Many listed companies we've recently surveyed are eager to adopt cloud or local AI deployments.

Yes, without a doubt, at the micro level, a new wave of investment centered around AI has already begun in Chinese enterprises! Combined with recent directives from the central and local governments urging public sectors, state-owned enterprises, and central enterprises to accelerate AI adoption, IT investment in government affairs is also set to increase. The breakthrough in large models has broken the deadlock of the past two years, where businesses were reluctant to invest and lacked investment opportunities. Various fields, including smart devices and AI applications, are now experiencing a new wave of entrepreneurial enthusiasm and investment. This wave of investment, centered on technology, will gradually reflect in the revenues and profits of related industries and companies. Opportunities in both primary and secondary markets will abound!

 Returning to Recent Stock Market Trends and Strategic:

The main theme of this bull market is crystal clear—this is an unprecedented tech-driven bull market in Chinese stock market history! This tech-driven bull market will not only bring substantial returns to active investors but also mark the maturation of China's tech industry. It will achieve comprehensive self-reliance in both hard and soft technologies.

Chinese companies are already global leaders in many fields. With the full embrace of AI by both the Chinese business community and the government, their global competitive advantages will only grow stronger. While Europe is busy producing weapons for war and the U.S. is preoccupied with its own turmoil, just as the global auto industry discovered China's lead in electric vehicles after the pandemic, in a few years, Chinese companies armed with AI will be even more formidable. While being too successful comes with its own set of challenges, it's still better than being left behind.

Strategically, the key is to identify the best AI+ companies across various sectors. In a tech-driven bull market, even the weakest players can soar with the wind. We've been through this before and know how to stay focused and make the right decisions.

A crucial piece of advice for a tech-driven bull market—find and invest in the eagles riding the wind!

In strong winds, sometimes pigs fly higher than eagles, but when the wind stops, the pigs will fall, while the eagles continue to soar.

With a nearly 30-strong fundamental research team and robust "computing power," our investment research team is working around the clock, deeply researching, actively investigating, and repeatedly validating the 13 new economic topics we identified at the beginning of the year. We are confident in helping investors seize the opportunities presented by this tech-driven bull market.

 Wu Weizhi

 March 3rd, 2025

本期《偉志思考》簡體中文版鏈接：

伟志思考： 美国在“拨乱反乱”，中国开启新一轮科技投资浪潮