DeepSeek Boom Continues Despite U.S. Tariffs... Further Upside Potential Remains

The Chinese stock market is experiencing a DeepSeek boom, remaining resilient despite U.S.-imposed tariffs. Analysts say that, as the tariff threats have not been as radical as expected, there is still significant upside potential for DeepSeek-related stocks. Market interest in Chinese domestic technology stocks is expected to continue for the time being.

On February 13, Baek Eunbi, a researcher at Eugene Investment & Securities, stated in the report "DeepSeek Overcomes Tariffs" that "the Chinese stock market has continued to rise, particularly among domestic technology stocks, as interest in DeepSeek remains strong despite the implementation of additional U.S.-China tariffs."

Baek noted that while the second Trump administration is raising tariffs more quickly than during the first term, the 10% increase in tariffs on Chinese goods is less extreme than anticipated. As a result, the financial markets have yet to show any signs of shock.

From February 6 to 12, the Shanghai Composite Index rose by 3.6%, and the Shenzhen Component Index increased by 5.4%. ChiNext, known as the "Chinese Nasdaq," jumped by 6.2%. This contrasts with the sharp declines seen during the U.S.-China trade war in 2018. The yuan also depreciated by only 3% against the U.S. dollar.

She explained, "The impact on both countries remains manageable, as the share of U.S. exports in China's total exports has declined, and China's export growth rate to the U.S. rose to 15.6% in December of last year as a preemptive response to the expected tariff hikes ahead of Donald Trump's inauguration."

However, the U.S.-China trade conflict is expected to persist. In addition to tariffs, pressure through technological sanctions is likely to intensify. Baek pointed out, "Whenever conflicts with the U.S. have expanded to areas such as technology and finance, China has responded by strengthening its domestic technology policies. Despite U.S. sanctions, China has recently showcased impressive achievements by companies like Huawei and DeepSeek, drawing significant attention to Chinese technology localization stocks." According to Eugene Investment & Securities, while the China A-share market rose by 3% from February 5 to 12, the DeepSeek theme index surged by 17.5%.

Baek also compared the China AIGC index's performance during the ChatGPT and DeepSeek rallies, stating, "DeepSeek is rising a bit more steeply than ChatGPT did at the time, but there still appears to be further upside potential." During the ChatGPT boom from January to April 2023, the AIGC index rose by 84%. In the case of DeepSeek, the index increased by 16% from January 20 to February 12.

Baek noted, "When comparing Chinese ChatGPT-themed stocks and DeepSeek-themed stocks by sector, computer, media, and telecommunications (TMT) companies are predominant." She further mentioned that during the ChatGPT boom, the TMT index's price-to-earnings ratio (PE) jumped by 27%, while the current PE has increased by 8%. She emphasized, "Interest in Chinese domestic technology stocks is expected to continue for the time being."