(Bloomberg) — DeepSeek’s innovative strides in artificial intelligence are facilitating a shift of stock funds back into China from India.
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Hedge funds are increasingly investing in Chinese equities at the fastest rate seen in months, fueled by optimism regarding a technology resurgence led by DeepSeek and expectations for additional economic stimulus. Meanwhile, India is experiencing an unprecedented outflow of funds due to concerns about declining macroeconomic growth, sluggish corporate profits, and high stock valuations.
Over the past month, China’s onshore and offshore equity markets have gained more than $1.3 trillion in total value amidst these reallocations, while the Indian market has contracted by over $720 billion. The MSCI China Index is poised to outperform its Indian counterpart for the third consecutive month, marking the longest such trend in two years.
“DeepSeek has demonstrated that China contains companies essential to the entire AI ecosystem,” stated Ken Wong, an Asian equity portfolio specialist at Eastspring Investments. His firm has been increasing its holdings in Chinese internet stocks over recent months while reducing its positions in smaller Indian companies that had significantly surpassed their valuation multiples.
This shift signals a reversal from the trend of investing in India that characterized recent years, as funds were attracted away from China due to India’s significant infrastructure spending and its potential to serve as an alternative manufacturing hub to China. Additionally, India’s domestic focus had positioned it as a relative safe haven during Donald Trump’s tariff initiatives.
China appears to be regaining its previous attraction as investors reevaluate its market potential, especially in the tech sector. After previously alarming investors with corporate crackdowns, Beijing now seems ready to foster the new AI momentum, as evidenced by the outreach to entrepreneurs like Jack Ma, co-founder of Alibaba Group Holding Ltd., inviting them to meet with the country’s top officials.
Developments related to DeepSeek are likely to stimulate both China’s economy and its markets, providing a sustained boost, noted Vivek Dhawan, a fund manager at Candriam. “When considering all factors, China presents a more attractive option than India in the current scenario concerning risk-reward dynamics.”
The valuation difference further enhances China’s appeal. The MSCI China Index is currently trading at approximately 11 times forward earnings estimates, compared to about 21 times for the MSCI India Index.
