In November 2022, the advent of ChatGPT sparked a fierce competition among Chinese tech firms, marking the beginning of what has been dubbed the "battle of the models." Fast forwarding to 2023, DeepSeek has significantly impacted both the global tech and financial ecosystems, showcasing the rapid advancement of Chinese AI technologyThis progress has notably narrowed the technology gap between China and the US, underscoring the formidable innovative capabilities of Chinese enterprisesKnown as the "mysterious Eastern power," this wave of innovation is spurring a global reevaluation of the value of Chinese technology firms and even Chinese assets as a whole.

Today, Chinese assets, particularly those represented by tech companies, display robust competitiveness and attractive investment valueHistorical analysis indicates that the growing optimism of foreign investors towards Chinese assets is not a novel trendBy examining past movements, it raises the question: are tech companies considered undervalued? Furthermore, how have Chinese assets transitioned from being "underweighted" to "overweighted" in foreign investment strategies?

Firstly, we are witnessing a golden era for Chinese tech assetsSeveral overseas investors, including global financial giants like Deutsche Bank, Goldman Sachs, UBS, JPMorgan Chase, and Bank of America, have recently adopted a positive outlook on the Chinese marketDeutsche Bank has indicated that the valuation discounts for Chinese companies may soon vanish amidst what they term a "Sputnik moment." Meanwhile, JPMorgan remains optimistic about the performance of Chinese tech stocks compared to their US counterparts, noting significant recovery potential despite a still considerable valuation discount.

Actions have already been taken by foreign capitalFidelity Investments has announced an increased stake in Chinese equities, labeling it as an 'overweight' positionData from Goldman Sachs shows that global hedge funds continue to bolster their Chinese asset holdings

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The International Institute of Finance (IIF) has also released a report indicating that in January this year, foreign investors made substantial allocations towards Chinese assets, with net foreign inflows exceeding $10 billion into Chinese stocks and bonds—marking the strongest inflows since the A-share rebounds last September.

As of February 18, corporate ratings receiving upgrades from foreign investors have been predominantly clustered around the TMT (technology, media, and telecommunications) and new energy vehicle sectorsNotably, following the impacts of the "9·24" new policy, foreign investment in Chinese assets had already begun ramping up well before the end of 2024.

Data from institutional surveys illustrates a marked increase in foreign interest in the A-share market's information technology and consumer sectorsBy February 18, over half of foreign-investigated companies fell within these three key industries, with info-tech firms accounting for more than 32%. Comparatively, the same period last year showed only a 45% cross-section in these sectors, with information technology represented at less than 30%.

In terms of institutional participation, since 2025, foreign institution involvement in surveys assessing technology companies has exceeded 45% for the first time, the highest in five yearsUp to this point, the sectors attracting the most foreign interest included industrials, utilities, and healthcare.

Performance-wise, the information technology sector stood out this yearAs of February 18, the sectors yielding the strongest results have been communication services and information technology associated with TMT.

From the perspective of foreign capital, the primary allure of Chinese assets lies in their relatively low valuation levelsThe latest rolling price-to-earnings (P/E) ratio for the Shanghai Composite Index stands at approximately 14, aligning closely with its 10-year averageIn contrast, the S&P 500 index currently sits at around 28, representing a 15% premium over its historical average.

When focusing on sector-specific valuations, the P/E for China's information technology index hovers near 45, closely resembling that of the US tech sector at roughly 48 times

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However, historically, the US tech sector's P/E is approaching a 10-year high, while China's is still significantly below its peak, and even the Hang Seng and Hang Seng Tech indices reflect P/E ratios lower than their respective historical averages.

Regarding price-to-book ratios, the latest data indicates that China's comprehensive A-share index is around 1.6 times, while the S&P 500 exceeds that by a factor of twoSpecifically, the A-share market's information technology index shows a price-to-book ratio below 3, contrasted with the US tech sector’s ratio surpassing 10 times.

Furthermore, on the dividend yield front, the comprehensive A-share index boasts a yield of 2.45%, while the S&P 500's yield stands at less than half that figureChina's information technology index yield at 0.98% is still superior to that of its US counterpart, which is less than 0.6%.

The equity-to-debt ratio (reciprocal of P/E against government bond yields) offers another comparative measure between stocks and bonds, indicating attractiveness for equity investmentsData reveals that China's equity-to-debt ratio exceeds 3, while the S&P 500's sits around 0.8. Notably, A-share tech stocks register a ratio above 1.35, while their US counterparts lag below 0.5.

In summary, A-shares exhibit lower valuations in contrast to US stocks, rendering them more attractive for investmentObserving trends over the past five years (2020-2024), the gap in valuations between China and the US has progressively widenedThe price-to-book ratios for A-shares have trended down, while equity-to-debt ratios and dividend yields have risen steadily; meanwhile, the US market has seen a notable decline, with the latest S&P ratio around 60% of its five-year average.

According to Zhang Jiqiang, Director of the Research Institute at Huatai Securities, US valuations are currently perceived as overly high, prompting global funds to search for high-value assets, with Chinese assets—now appearing to be undervalued—regaining investor attention.

Citic Securities highlights that the revaluation prompted by DeepSeek has seemingly lifted the price-to-earnings estimates for leading firms

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Ultimately, it symbolizes a transition of Chinese AI assets from negative to positive valuationsShould economic optimism arise, there exists potential for a leap in core business valuation, and any significant contributions from AI segments could likely usher in shifts in revenue multiplesCitic Securities predicts that we are still early in the AI era and at the nascent stage of Chinese tech assets’ revaluation, as major technological breakthroughs continually present systematic opportunities for enhanced valuation.

Secondly, examining the foundation of this asset reevaluation reveals robust economic fundamentalsAs of 2024, China's GDP has crossed the RMB 130 trillion milestone, reflecting a 5% annual increaseInsights from the 2025 Spring Festival indicate a vibrant consumer market, with eight days of holiday domestic travel hitting RMB 67.7 billion—a 7% rise year-on-yearThe film industry has also experienced a vigorous rebound, with box office tallies surpassing RMB 20 billion by February 16, marking the fastest historic milestone for such revenues.

Various new economy sectors, including low-altitude economy, autonomous driving, and humanoid robotics, showcase unprecedented growth potential, with over 30 provincial-level regions drafting detailed plans for low-altitude economic development in 2025.

Lin Yifu, head of the New Structural Economics Institute at Peking University, asserts that in 2025, China's economy will maintain a continuation of the "post-upturn" stage of the last quarter of 2024, with growth in recoveryThe International Monetary Fund (IMF) has reported upward revisions for China’s 2025 economic growth forecast to 4.6%, with global economic growth expectations holding steady around 3.3% for the coming two years.

This stable economic growth fosters a nurturing environment for smooth operations in the capital markets, instilling confidence for A-shares and Hong Kong stocks in their upcoming valuationsSpecifically, performance levels directly impact valuation heights, with earnings growth expectations playing a pivotal role in defining valuation potentials.

Considering A-shares, analysis of performance forecasts and consensus projections indicates a slight decline in net profits for 2023, while institutions predict 2024 will see a turnaround, with net profit growth expectations likely reaching around 15% by 2025, signaling further growth into 2026. Additionally, the information technology sector within A-shares is projected to exhibit even stronger growth, potentially nearing a net profit increase of 26% in 2025.

Lastly, burgeoning policy expectations contribute to an overall enhancement in investor confidence

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