Global Investors Reassess China’s Stock Markets

After a two-year lull, global investors are increasingly re-evaluating China’s stock markets, with renewed activity fueling a surge in equity issuance, which more than doubled in the first quarter of 2024 compared to the same period last year, according to investment bankers.

A combination of factors, including the Chinese government’s easing of scrutiny on technology giants and the rise of disruptive AI developer DeepSeek, has piqued investor interest, despite ongoing concerns over Sino-U.S. trade tensions, financial experts said.

According to LSEG data, total equity issuance by Chinese firms in the first quarter reached $16.8 billion, marking a 119% year-on-year increase.

Changing Investor Sentiment

“The psychology of investors has shifted significantly,” said James Wang, head of Asia ex-Japan Equity Capital Markets at Goldman Sachs. “Many who previously considered China ‘uninvestable’ now view the market as undergoing a re-rating process. While risks remain, the focus has moved toward identifying opportunities, particularly among long-term investors.”

The renewed optimism is evident in Hong Kong’s financial markets. The benchmark Hang Seng Index has risen 21% in 2024, making it the best-performing international index, LSEG data shows. The index currently trades at a 12-month price-to-earnings (P/E) ratio of 10.5x, while the MSCI China index stands at 11.7x, significantly lower than the MSCI U.S. (20.3x) and the S&P 500 (20.5x). Indian stock markets, by comparison, average 18-19.99x.

“The world’s second-largest economy offers stock valuations at a 40% discount compared to other global markets,” Wang noted. “China’s microeconomic policies and DeepSeek’s advancements in AI have bolstered confidence in Chinese equities, highlighting the valuation gap and offering downside protection for investors.”

Tech Sector Revival Draws Investors

Investor sentiment has also been buoyed by a shift in China’s technology sector. A recent summit led by President Xi Jinping, attended by key tech industry leaders, signaled an easing of the regulatory crackdown that had gripped the sector since 2020.

Adding to the momentum, DeepSeek shook global financial markets in January by unveiling AI products at a fraction of the cost of its competitors. This, coupled with Beijing’s renewed support for private enterprises, particularly in AI, quantum computing, semiconductors, and microelectronics, has encouraged investors to reconsider China’s tech sector.

“The emergence of DeepSeek has fundamentally altered the way global investors perceive China, as well as how the Chinese government views AI and quantum computing,” said Harish Raman, Citigroup’s Asia head of ECM execution and solutions.

“This is a significant endorsement for Chinese private enterprises, particularly in high-tech sectors. Investors are responding positively, and we’re seeing a shift in capital back to China. While there are concerns about the pace of market gains, the sentiment feels more constructive this time,” Raman added.

IPO Boom in Hong Kong

Chinese firms have also been instrumental in reviving initial public offering (IPO) activity in Hong Kong. According to LSEG data, IPO proceeds in the first quarter surged to $1.47 billion, up from $612.7 million in the same period last year.

Bankers anticipate that secondary listings of mainland Chinese companies will dominate Hong Kong’s IPO pipeline for the rest of the year. Among them, battery manufacturer CATL, currently listed in Shenzhen, has filed for a Hong Kong listing expected to raise at least $5 billion.

“The strong backing from both mainland Chinese and Hong Kong regulators, combined with policies encouraging high-end A-share firms to list in Hong Kong, has fueled market activity,” said Victoria Lloyd, consultant at MinterEllison. “Given the uncertainties in U.S. and European markets, the recent surge in Hong Kong’s trading volumes appears sustainable.”

As China’s stock markets undergo a re-rating, investors are increasingly drawn to the region’s competitive valuations, tech sector recovery, and robust IPO activity—suggesting that global capital may be returning to the world’s second-largest economy.