Does a rising tide in China’s stock market lift all boats? It has certainly helped the country’s publicly traded real estate investment trusts. Since December 9, the CSI Reits Index – which tracks the performance of China’s publicly traded real estate investment trusts – has risen 13.5 per cent. Nearly half the increase has occurred since mid-January when this year’s spectacular rally in Chinese technology shares began.
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Chinese equity indices with the highest exposure to the tech sector are on a tear. The Hang Seng Tech Index is up 38.7 per cent since January 13, while the MSCI China Index has gained around 26 per cent. The trigger for the rally is DeepSeek, the Hangzhou-based artificial intelligence (AI) start-up that stunned the world last month by rivalling Silicon Valley’s most sophisticated AI models at a fraction of the cost.
By showing that China’s tech industry is more innovative and self-sufficient than previously assumed, DeepSeek has been a powerful catalyst for reassessing the outlook of Chinese stocks. President Xi Jinping’s support for the private sector, evidenced by his meeting on February 17 with the heads of China’s largest tech companies, has helped underpin the improvement in sentiment.
The reappraisal is part of a broader shift in asset allocation as global fund managers start to favour other regions over the United States. Bank of America draws parallels with the turnaround of China’s stock market from 2014 to 2016, driven by breakthroughs in the tech sector, more forceful stimulus measures and structural reforms.
Morgan Stanley believes “a structural regime shift is finally happening” that is “reducing China’s equity risk premium and improving investability”. Meanwhile, JPMorgan says Chinese tech stocks could outperform US and other tech shares because of China’s competitive advantage in “monetisable AI applications, particularly in content, e-commerce, cloud computing and autonomous technology”.
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The implications for China’s commercial property sector are significant. One of the reasons the Reits index has performed well is because most of the trusts’ underlying assets are infrastructure schemes rather than traditional commercial properties, such as offices and shopping malls.