The landscape of the global financial market is often shaped by innovations and economic stimuli from leading nations, and the recent developments in China are no exceptionAs we usher in a new year, the introduction of domestic artificial intelligence (AI) models alongside expansive macroeconomic policies has ignited optimism among major Wall Street investment banks and asset management firms regarding the future of the Chinese stock market, particularly in the technology sectorThis renewed investor enthusiasm has even propelled emerging market indices to new heights, marking an exceptional resilience in these markets.

However, as the momentum builds, so, too, does a sense of cautionWith previous positive news now largely priced into the market, some investors are beginning to lock in profits, leading to more tempered voices amidst the bullish projections.

Goldman Sachs analyst Kinger Lau expressed great confidence in the prospects of the Chinese stock market, particularly following the unveiling of DeepSeek, an advanced AI modelIn a report released on the 17th, Lau mentioned that the emergence of DeepSeek has spurred a global reassessment of China's technological advancements, forecasting significant growth in the marketAs a result, Goldman Sachs raised its 12-month target for the MSCI China Index from 75 to 85 points and adjusted its target for the CSI 300 Index from 4600 to 4700 points.

Lau elaborated that developments such as DeepSeek and other Chinese AI models have fundamentally altered the narrative surrounding the Chinese stock market, prompting investors to reassess their expectations concerning AI's growth and economic implicationsHe anticipates that, over the next decade, AI's widespread implementation could bolster China's earnings per share (EPS) by an average of 2.5% annually.

In the past week, other prominent investment firms like Morgan Stanley, JPMorgan Chase, and UBS have echoed similar bullish sentiment regarding China's stock market

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UBS's China equity strategist, Meng Lei, identified three key narratives shaping the Chinese stock market's landscape for the new year, with the first being the conjunction of DeepSeek and technological innovation in ChinaHe emphasized that China's homegrown AI models, achieving world-leading performance at lower costs, are reigniting global investors' interest in Chinese innovationAs a result, he predicts that the capital market will take on a larger role in promoting technological advancement and industrial transformation in China, with the tech sector's market value representing 21% of the A-share total market capitalization, increasingly driving activity in the market.

Furthermore, Meng pointed out that sectors closely tied to AI, such as computing, automotive, and electronics, have experienced a notable uptick in valuations since the Lunar New Year, pushing the tech sector's trading volume to reach an historic high of 44% of total A-sharesHe foresees that this trend could continue as positive fundamentals materialize and real-world applications expand.

The second favorable narrative for the stock market consists of an expansive policy relaxation that aids in the restructuring of valuationsMeng noted that an uptick in fiscal deficit alongside interest rate cuts has breathed life back into the A-share market, facilitating a more favorable environment for investmentThe long-awaited regulations under the “New National Nine” are now encouraging a shift toward a more investor-centric structure in the marketThis pivot is evidenced by a decrease in financing and major shareholder sell-offs, coupled with an increase in dividends and share buybacks—creating momentum for market valuation management reformMoreover, the implementation of the “Promoting Long-term Capital Investment” initiative, which increases the allocation of existing funds into equity assets, is expected to attract substantial long-term capital inflows into A-shares.

A bright new shift is on the horizon, not just from local investment banks but also from institutional players abroad

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Edward Cole, head of the multi-strategy equity division at Man Group, a globally renowned hedge fund, recently remarked that investing in Chinese stocks is among the most assured trades leading into 2025. With the current valuations of Chinese stocks at historical lows, he noted that breakthroughs in the AI sector are reshaping the global investor perception of China's innovation capabilitiesDespite China's innovations being on par with those in the U.S., their market value remains understated, presenting a unique opportunity for investors seeking outsized returnsCole believes that shifting capital away from the overly concentrated U.S. market and towards emerging markets like China could expedite a significant bull market.

Reflecting on historical trends, Cole compares the current situation to that of 2018, stating that the valuation of A-shares has not excessively priced in trade tensions, nor has it been unduly slow to adjustHe suggests that while the market may experience an initial dip in response to tariff news, it tends to stabilize within a week or twoCertain sectors, particularly those with higher overseas revenue exposure, may be under pressure, but areas leveraging autonomous control technologies could see positive impacts on their valuations.

The ripple effects of the Chinese market's scorching rally are evident, too, in the emerging market indices around the worldThe MSCI Emerging Markets Index recently peaked at 1137.43 points, marking the highest level since November of the previous yearThe surge was particularly credited to performances from the Asian semiconductor and technology sectorsTencent Holdings, a cornerstone of the index, jumped 3.96% to 493.6 HKD, marking its highest price since July 2021, driven by the integration of DeepSeek's AI model into WeChat.

James Ooi, a market strategist at Tiger Brokers in Singapore, elucidated that the recent resurgence in emerging market indices is rooted in relatively low valuations, growing optimism about Chinese technology surpassing that of the United States, and the accelerated adoption and commercialization of AI technologies.

Despite the promising outlook for Chinese stocks, the same enthusiasm is not mirrored in the Indian stock market, which, despite experiencing long-term foreign investment, faces a somewhat bleaker forecast

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As the MSCI Emerging Markets Index reached a three-month high, the Nifty 50 index in India has witnessed a decline of about 10% from its peak in September of the previous year, highlighting a stark contrast in market trends.

According to Yao Ting Zhao, a global market strategist at Invesco Asia Pacific, excluding Japan, the Indian economy is currently facing signs of slow growthConsumer spending has waned, especially in urban areas where stagnant wage growth has constrained household financial stability, compounded by the subdued earnings of India's major consumption-focused firms in recent quartersThis slowdown has cast a shadow on the local stock market.

Looking forward, Zhao pointed out two significant policy initiatives rolled out by India in February, which could provide a fresh impetus for growthThe Indian government has announced tax relief measures amounting to 1 trillion rupees (approximately 115 billion USD) aimed at the middle class, likely boosting consumptionAdditionally, the Reserve Bank of India has implemented its first interest rate cut in five years, reducing the benchmark rate by 25 basis points to 6.25%. This combination of monetary easing and improved fiscal spending is expected to reinvigorate India's economic growth in the coming monthsHowever, the key risk for the Indian market remains its notable reliance on exports, particularly to the U.S., where the proportion of service exports has risen to 10% of GDP, above pre-pandemic levels.

Nonetheless, Invesco maintains a positive long-term structural outlook for the Indian stock market, suggesting that as cyclical growth challenges subside and corporate earnings exceed expectations, a revival in Indian equities could be well within reachWith the backdrop of dynamic shifts in investment sentiment and robust policy frameworks, both China and India present compelling narratives unfolding in the global financial domain.