What a difference a year makes.
In early 2024, China was struggling through a sluggish post-pandemic recovery, thanks to weak consumption, ongoing worries about property, and a continued hangover from a regulatory crackdown on China’s tech sector.
The pessimism was reflected in equity markets: listings in Hong Kong, the traditional channel for Chinese companies looking for foreign capital, had dried up amid regulatory scrutiny. The Hang Seng Index, the city’s benchmark index, had just notched its fourth straight year of losses.
The sentiment today is much different. During Hong Kong’s so-called Mega Event Week—a series of back-to-back conferences capped by the Art Basel fair and the Rugby Sevens tournament—banking and finance executives from Hong Kong, mainland China, Europe, the U.S., and further beyond stressed that they always knew that China and Hong Kong would return.
The Hang Seng Index is up almost 20% for the year so far, compared to a 3% drop in the S&P 500 and a 5.8% drop in Japan’s Nikkei 225. Chinese companies like Alibaba, Xiaomi, and BYD have staged double-digit rallies. Wall Street is upgrading its targets on China shares, citing more positive policy signals from Beijing and the possibility of new innovations after DeepSeek.
“Absolutely it’s investable,” said Jenny Johnson, CEO of Franklin Templeton, on Thursday at the HSBC Global Investment Summit in Hong Kong, referring to the world’s second-largest economy.
The changed narrative is “striking,” Frederic Neumann, chief Asia economist at HSBC, told Fortune on Thursday, during a sideline interview at the U.K. bank’s conference. “There’s much more optimism and interest in China.”
Bonnie Chan, CEO of Hong Kong Exchanges and Clearing, which operates the city’s stock exchange, crowed about the shift in sentiment at HSBC’s event on Tuesday. “Just a year ago, many international investors consixdered Chinese stocks uninvestable, but their view changed in September, and many of them have started to increase their investments in Hong Kong and China,” she said.
Hong Kong’s stock exchange is now attracting blockbuster IPOs from Chinese firms. This week, Tesla supplier CATL revealed it received official approval to raise $5 billion through an IPO in the Chinese city. It will be the city’s largest listing since 2021.
The DeepSeek shock
China’s stock rally arguably began with the release of DeepSeek’s cheap, powerful and efficient AI model in late January, which erased around a trillion dollars in value from U.S. tech stocks—and added about the same amount in Chinese tech stocks.
“DeepSeek was a shot in the arm for those looking to see confidence,” Kevin Sneader, Goldman Sachs’ president of Asia-Pacific ex-Japan, said at the Milken Global Investor Symposium on Monday.
Soon after investors cottoned on to DeepSeek’s potential, the startup’s founder Liang Wenfeng got a seat at a symposium with President Xi Jinping, alongside other leading tech executives like Tencent founder Pony Ma and Huawei founder Ren Zhengfei. Sneader on Monday said the “handshake” meeting was a clear signal Beijing was ready to embrace the private sector. “Confidence does feel like it’s returned,” he said.
After DeepSeek, international investors remembered China’s tech sector has the capacity to innovate, noted Yimei Li, CEO of China Asset Management.
International investors, including in the U.S., are now paying closer attention to China’s tech sector, said Clara Chan, CEO of the Hong Kong Investment Corporation, on Tuesday. She added many now want to use Hong Kong as a launchpad for this investment, working with domestic institutions.
Is China finally turning a corner on consumption?
Less certain is whether Beijing is prepared to do more to boost the rest of the economy.
Since September, officials have promised more stimulus to encourage domestic consumption, which has flagged since the end of the COVID pandemic. Officials again reiterated their drive to bolster consumption after the “Two Sessions” last month.
Still, there’s a lot of ground to cover. Economist Keyu Jin, at Milken’s event on Monday, pointed out that consumption made up just 38% of China’s GDP, “really very low compared to much more advanced economies.” She noted that there’s still “hundreds of millions of people in rural areas” without proper access to health care, education, and social security compared to urban residents.
But financial firms may be taking a longer-term view of things. “It’s really hard to bet against any country that has 1.4 billion people,” Ali Dibadj, Janus Henderson Investors CEO, said at HSBC’s conference on Thursday. “[China] has an enormously successful history, lots of innovation, lots of motivation and, importantly, lots of incentives being created by the government.”
HSBC’s Neumann told Fortune that while “nobody expects a miracle from China this year,” there’s a perception of a “gradual” shift in Beijing’s approach to consumption. Investors believe “there’s a structural shift happening in China, which might take several years—but there’s certainly something happening.”
Not everyone is convinced, however. Former Morgan Stanley Asia chairman Stephen Roach dismissed Beijing’s rhetoric as “more slogans than substantive actions” in an interview with Bloomberg on Thursday.
What about the U.S.?
Optimism about markets like China and Europe is matched by pessimism in the U.S. Tariff fears, inflation, and weak consumer sentiment have dragged down American equity markets this year.
“The single biggest risk factor in most people’s portfolios is U.S. tech,” Aaron Costello, head of Asia for Cambridge Associates, said at Milken’s conference on Monday. Shares in the “Magnificent Seven” are in the red for the year so far; Nvidia is down by more than 20%, while Tesla is down by over 30%.
The Trump administration, too, is hitting sentiment with its back-and-forth on tariffs. On Monday, the U.S. President suggested tariffs might not be as strong as feared. A few days later, he ended that budding optimism by slapping a new 25% tax on car imports, and another 25% tariff on any country that imports oil from Venezuela.
Investors are now waiting for April 2, when the Trump administration will unveil a whole set of new tariffs on a country-by-country basis.
“Globalization as we knew it may have now run its course,” HSBC chairman Mark Tucker said Tuesday as he opened his bank’s Hong Kong conference. “What used to be sustainable no longer is.”
