After an agonizing wait of more than three years, today saw Tencent's stock price return to the impressive mark of HKD 500, soaring as high as HKD 512 during intraday trading, which consequently resulted in a market value increase of approximately HKD 320 billionThis remarkable spike signifies Tencent's first breach of the HKD 500 barrier since July 2021.

The developments from Tencent, particularly in conjunction with its 'WeChat + DeepSeek' initiative, illustrate the company's powerful resurgence in the tech sectorSince January 14, tech stocks in Hong Kong have been consistently on the rise, with the Hang Seng Tech Index boasting a cumulative increase exceeding 30%. A noteworthy aspect of this rally has been the conspicuous participation of foreign capital, marking a return of international investors to the Hong Kong market.

According to Bloomberg, hedge funds from around the globe have entered the Chinese stock market at an unprecedented pace, driving the combined market value of both onshore and offshore markets to grow by over USD 1.3 trillionThis influx is not merely coincidental; it has been fueled by the dual forces of DeepSeek's robust capabilities and the favorable fundamentals and valuations of Chinese technology companies.

As we delve deeper into these dynamics, the buzz surrounding DeepSeek continues to amplifyEmerging prominently in the post-Chinese New Year market landscape, DeepSeek has quickly established itself as one of the principal themes dominating both the Hong Kong and Mainland marketsMajor Chinese technology giants including Baidu, Huawei, Alibaba, and Tencent have rolled out DeepSeek's large-scale model since February, demonstrating their commitment to spearheading advancements in artificial intelligence (AI).

The technology industry is indeed riding a new upcycle, driven by innovations in AI and other advanced information technologies, accelerating their implementation across various sectorsAnalysts from both Chinese and foreign investment banks have indicated that as China's tech sector matures, a concept akin to the 'Magnificent Seven'—the leading tech firms dominating the global market—may soon emerge from Chinese shores.

On one hand, China is transitioning through a period of energy transformation, aiming to harness technological innovation as a catalyst for upgrading its industrial structure

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On the other hand, the nation stands at the forefront of the new technological wave led by AI, which is permeating all facets of the economy and societyWith a strong foundational base in talent and technological capabilities, China's tech sector is poised to benefit from these burgeoning technological trends.

Data indicates that the most significant industry-themed ETF related to DeepSeek is the Xinchuang ETF (562570), in which DeepSeek concept stocks constitute a heavy weight of 48.1%. This ETF saw a rise of 0.6% today, boasting an impressive year-to-date gain of 25.12%. This performance mirrors the trends observed in the U.S. with its tech giants benefiting from sectors like AI, semiconductors, and high-end manufacturing, suggesting that a new cohort of competitively viable tech leaders might be emerging in both the A-share and HK markets.

This reassessment phase for Chinese tech stocks places Hong Kong in a favorable position, primarily due to two factors: the concentration of high-quality technology firms with strong competitiveness, particularly those at the forefront of AI technologies, and China's proven capability to quickly adapt and lead innovations such as in the short video segment, evidenced during the internet eraHong Kong's tech companies have excelled in this regard.

For instance, Tencent, with its astonishing user base of over 1.3 billion active users on WeChat, is at the forefront of this technological waveThe recent integration of DeepSeek into WeChat is seen as a game-changing move in the tech realmJust recently, WeChat Search began gradual testing with DeepSeek, allowing a select group of users to access the robust version of the DeepSeek-R1 model free of charge within the search functionality.

Reflecting on Tencent's strategy, the company has persistently accelerated its AI integration initiativesTencent Cloud's AI code assistant and the Tencent Yuanbao APP have already incorporated DeepSeek-R1, while Tencent Docs also announced its integration today, broadening the access to advanced features such as long-text reasoning and real-time internet searching capabilities.

As Tencent continues to fortify its position in the AI landscape, bullish sentiment from Wall Street analysts has surfaced

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Goldman Sachs recently emphasized that Tencent's continuous integration of DeepSeek underscores its AI open strategy as a significant growth exponentWith access to essential e-commerce infrastructures, mini-program ecosystems, and WeChat Pay features, Tencent stands as a primary beneficiary of AI applications.

UBS has similarly noted that the gradual adoption of DeepSeek across Tencent's product lines could unlock new revenue streams, generating additional traffic and fostering growth within its AI agency ecosystemBeyond Tencent, the collaborative efforts of Alibaba with Apple and the growing share of Chinese electric vehicles in the market are also contributing to the revaluation of Chinese tech stocks.

Yet, the question arises: how long can this momentum last? The upward trend ignited by DeepSeek within the Chinese tech sector has persisted for over a month, with fluctuating stock performances indicating possible exhaustionSome analysts caution about an impending correction, observing typical market behavior—where significant gains often precede pullbacks.

Recent market actions have indeed shown signs of volatility, highlighting discrepancies in investor sentiments regarding future movements, unlike the previous singular upward trajectoryPast experiences echo this uncertainty; recalling the frantic surge of Hong Kong stocks around the National Day holidays last year, only for them to tumble once the market reopenedThis memory leads some investors to fear a repeat of similar short-lived gains.

Additionally, social media buzz surrounding the transaction densities in the technology, media, and telecommunications (TMT) sectors reflects signs of overheating among tech stock investmentsHence, while the possibility of a pullback cannot be ruled out, the current investor sentiment exhibits a cautionary approach towards excessive risk-taking.

Conversely, as we contrast today's situation with previous market landscapes, several favorable developments indicate a more robust market resilience

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One particularly noteworthy point is on the trading front: global hedge funds have rapidly entered the Chinese market, buoyed by the advancements of DeepSeek technology, leading to substantial growth in market valuations.

For instance, reports indicate that many asset management firms like Eastspring have recently increased their investments in Chinese internet equities while reducing their holdings in overvalued Indian small-cap stocksThis trend confirms a reinstated interest from foreign capital in the Chinese technology sector.

Such resurgence in foreign investment illustrates a recognition of China's internet industry evolution—moving from modest beginnings to an influential global player, reaping substantial rewards along the wayAs a result, the logic behind foreign investment in Chinese tech assets becomes clear; stakeholders are eager to partake in China's AI-driven technological renaissance.

Moreover, when contrasting the valuations of Chinese tech stocks with their U.S. counterparts, an opportunity emerges despite the recent rallyFor example, Tencent boasts a dynamic PE of 23 times, compared to Meta's 30 times, and Alibaba matches Tencent with a dynamic PE of 23 times versus Amazon's 41 timesWhile U.S. markets have been in consolidation since December without any signs of breakthrough, the complex interplay of aggressive tariff policies in the U.S. and sluggish inflation projections is likely to keep liquidity constrained, fostering an environment that encourages capital reallocation to undervalued assets, with Hong Kong being one of the few markets to fulfill this need.

As long as foreign investors actively pursue opportunities within Hong Kong's tech space, the AI investment enthusiasm within the market is unlikely to fizzle outInvestors may keep a vigilant eye on specialized index funds, such as the Hang Seng Internet ETF (513330), which has demonstrated considerable trading activity today with transaction values reaching HKD 11.68 billion, and a total size hitting HKD 27.4 billion

This ETF closely tracks the Hang Seng Internet Technology Index, focusing on key players in the internet industry like Alibaba, Tencent, JD.com, Kuaishou, Meituan, Netease, and Baidu, with top constituents constituting a hefty 86% of the fund's weight.

Similarly, the Hang Seng Technology Index ETF (513180), which also exceeds HKD 20 billion in size, follows a broad technological index encompassing internet, consumer electronics, semiconductors, and new energy vehicles, providing investors a diversified vehicle to tap into the Hong Kong tech sectorDespite entering a technical bull market, the Hang Seng Technology Index remains at historically low valuations, with a dynamic price-to-earnings ratio of 25.03, positioning it below the median figure.

In summary, the Hong Kong market has faced significant headwinds over the past few years, landing it in a prolonged downtrend and valuation troughHowever, this pattern appears to be shifting as the negative factors that once plagued the market recede or transformRecent gatherings, such as the roundtable on private enterprises with a focus on high-tech companies, underscore the government's commitment to these industries.

The pivotal shift marked by September 24 last year suggests that we are witnessing a fundamental turnaround rather than a mere valuation correctionPresently, with the breakthroughs spurred by DeepSeek technology, we stand on the cusp of expanding commercial and investment opportunities as technical constraints on domestic AI continue to diminish.

Capital markets are increasingly crafting a narrative expecting a double-driven market with substantial valuation reassessments alongside an uplift in fundamental performanceWhile a pristine valuation uptick often bolsters stock prices quickly, the sustainability of these gains typically requires strong performance guarantees driven by real growth, enabling a more resilient upward trajectory.

Though today’s market displays fluctuations, the overarching trajectory for Hong Kong tech stocks remains positive

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