What's Behind the Surge in Chinese Tech Stocks & ETFs?

Chinese tech stocks have been red hot lately, while the Magnificent Seven have lost some of their shine. The Hang Seng Tech Index, which tracks the 30 largest tech stocks listed in Hong Kong, is up 30% year-to-date.

Investors have been piling into these stocks since DeepSeek's breakthrough. While many questions remain about DeepSeek, its AI was likely developed at a fraction of the cost of its U.S. competitors and without access to NVIDIA’s NVDA most advanced chips. This suggests that China is not far behind the U.S. in the AI race.

On Monday, Chinese President Xi Jinping met with tech leaders, signaling that Beijing’s regulatory crackdown on the sector—which began in 2020—is over. Chinese tech giants lost hundreds of billions in market cap, and despite the recent recovery, their shares remain far below their previous peaks.

Alibaba BABA stock has surged more than 50% this year, thanks in part to its AI partnership with Apple AAPL to roll out the iPhone maker’s AI features in China.

Goldman Sachs raised its target price for Chinese stocks on Monday, estimating that AI adoption could boost earnings growth and potentially attract $200 billion in inflows.

Compelling valuations have also drawn some foreign investors to Chinese equities. Some institutional investors have pulled money out of relatively expensive Indian markets and shifted into Chinese stocks.

It remains to be seen whether this rally can continue. In October last year, Chinese stocks surged after policymakers introduced sweeping stimulus measures to boost growth.

Billionaire investor David Tepper told CNBC at the time that he was bullish on Chinese equities, saying he had bought "everything" related to China. However, the rally later lost steam.

Beyond President Trump’s tariffs, other macroeconomic and geopolitical risks could present headwinds to this rally.

The KraneShares CSI China Internet ETF KWEB provides exposure to Chinese internet companies listed on Hong Kong or U.S. exchanges.

The Invesco China Technology ETF CQQQ holds Chinese technology stocks, while the iShares China Large-Cap ETF FXI invests in large-cap Chinese equities trading on the Hong Kong Stock Exchange.

Alibaba (BABA), Tencent Holdings TCEHY, JD.com JD, and Pinduoduo PDD are among the top holdings in these ETFs.

To learn more, please watch the short video above.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research