Weekly Buzz: Can China’s AI rally pass the earnings test? 🇨🇳

5 minute read

China's beaten-down tech stocks are enjoying a rare moment in the sun. Giants like Alibaba, Tencent, and Baidu have been basking in it ever since DeepSeek revived market sentiment. It's a distinct change in weather: after years of skepticism, regulatory crackdowns, and sluggish consumer demand, tech stocks in Hong Kong may now be leading a broader Chinese market recovery.

Time for the numbers to talk

Since DeepSeek's debut, the Hang Seng Tech Index has surged to a three-year high as investors bet on China's potential to challenge US dominance in AI. That momentum got an extra boost when President Xi Jinping met with tech leaders, including Alibaba's Jack Ma and Huawei's Ren Zhengfei.

But sentiment is one thing – earnings are another. This week's reports from Alibaba and Baidu will offer crucial insights into whether these companies can transform AI advances into sustainable profits. If results prove AI-driven growth, China's tech stocks could extend their gains. But if they disappoint, we could see a correction as investors reassess their optimism.

The Chinese government's approach to regulation adds another layer of complexity. Officials are setting up a committee to develop AI standards, suggesting a more hands-on role. It's a stark contrast to the US, where regulatory oversight is being scaled back.

What’s the takeaway here?

This earnings season for China is more than just about the numbers – it's a test of whether AI can revitalise its broader equity market. It’s important to remember that fundamentals like corporate profits ultimately determine long-term value. If you're looking to fine-tune your exposure to China's evolving tech landscape, here’s a guide using our Flexible Portfolios.

📰 Other News: Europe prepares to hit back at US tariffs

Trump’s latest talk of tariffs: a 25% levy on global steel and aluminum imports – and Europe's promising to hit back. If this sounds familiar, that's because we've been here before: when Trump announced metal tariffs in 2018, Europe retaliated by targeting American products like Harley-Davidsons.

Vehicles and semiconductors could be next, which would be a headache for Germany's all-important carmakers. Europe has promised its response will be "firm and proportionate" – diplomatic speak for matching tariffs of their own. If these taxes and counter-taxes escalate, they could disrupt global trade flows, push inflation higher, and put pressure on corporate profits worldwide.

One country might benefit from all this: China. After years of getting the cold shoulder from investors, the country is starting to look relatively less risky now that US trade pressures are focused elsewhere. Recent developments in China's tech sector have also renewed confidence (as we’ve just covered). The shift in sentiment is showing: the first week of February recorded the strongest purchase of Chinese equities by hedge funds in over four months.

These articles were written in collaboration with Finimize.

📖 A Little Context: When trade wars hit home

When countries table tariffs, they often aim for maximum political impact by targeting culturally significant products. Europe's 2018 choice of counter-tariffs wasn't random: among others, they picked Levi's jeans and Florida orange juice – quintessentially American brands. This strategy isn’t new. Back in 1983, when Japanese motorcycles dominated the US market, President Reagan imposed steep tariffs on them – effectively protecting Harley-Davidson. By choosing products with cultural significance, countries create pressure that goes beyond pure economics.

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