At Huaqiangbei’s electronics market – the beating heart of Shenzhen’s hardware hustle – something new is stirring. Amid the usual tangle of cables and chipsets, vendors are now showcasing AI boards and local large language model (LLM) demos powered by models like DeepSeek. It is scrappy, fast and unmistakably grassroots. A new wave of bottom-up innovation is taking hold and the equity market is starting to notice.
In a year dominated by protectionist headlines, President Trump’s tweets and the ‘TACO’ (Trump always chickens out) trades, one of the strongest performing markets year-to-date has been, perhaps counterintuitively, China and the rally continues in defiance of geopolitical headwinds.
What is driving it?
The return of DeepSeek was the headline, but the real story is what followed: a rekindling of animal spirits and a reawakening of China’s innovation engine, now visible not only in sentiment but in equity prices. We believe three forces are at play which together are driving a structural repricing of Chinese equities and we think that repricing has only just begun.
Perception: From black sheep to one among many
During Trump’s first presidential term, the dominant narrative was binary: US versus China. That framing imposed an unusually high geopolitical risk premium on Chinese assets. Under Trump 2.0, the narrative has shifted, subtly but meaningfully. It is no longer just about China. Europe, Mexico, Vietnam and even Canada have found themselves in the crosshairs of US tariffs. In this broader context, China no longer stands out as the sole bad actor in the eyes of investors and the geopolitical discount applied to Chinese equities has narrowed.
In a world in flux – with a withdrawing America – strategic priorities, risks and opportunities are being reassessed. This shift in perception is quietly but materially supporting the rerating of China equities.
Policy: The pivot back to business
For much of the past five years, China’s private sector has been on the defensive. An anti-monopoly crackdown, regulatory tightening, and ‘common prosperity’ campaigns left entrepreneurs sidelined and sentiment drained. Business leaders – once hailed as national champions – kept their heads down, navigating an environment that felt increasingly hostile to capital and innovation.
That began to change in mid-2024. Quiet signals of a shift – Alibaba co-founder Jack Ma reappearing in public and Tencent CEO’s Pony Ma publishing a rare op-ed in People’s Daily calling for renewed entrepreneurism – culminated in a pivotal moment in February 2025, when President Xi met with the country’s top tech and private sector leaders and declared: “I have always been a champion of the private sector”.
We believe three forces are driving a structural repricing of Chinese equities and we think that repricing has only just begun
This was more than rhetoric. It marked the clearest top-down endorsement of business in years – a recognition that growth, innovation and China’s global competitiveness depend on private capital. Since then, policy actions and tone from Beijing have consistently reinforced a pro-growth, pro-business stance.
On behalf of the Fund, we have long argued that the crisis of confidence – not credit or capacity – was the biggest drag on China’s equity story. That confidence is now being slowly, but meaningfully, restored. The return of policy support is reviving animal spirits and markets are responding.
Technology: China as the alternative to the US
For decades, global investors, businesses and governments defaulted to one source for innovation: the US. From cloud infrastructure to operating systems, from mobile platforms to semiconductors, the US was not only the epicentre of technological leadership but also the sole scalable provider of it.
That world is changing, and the US is no longer the only game in town.
With the US becoming more inward-looking and fragmented in its approach to global tech export and platform access, the rest of the world is looking for alternatives. And in many critical sectors – from AI to robotics, biotech to autonomous driving – China is now the only viable substitute. For the Global South in particular, which seeks affordability, performance and sovereignty, Chinese technology is fast becoming the default option.
The DeepSeek moment was symbolic but not isolated. From generative AI to humanoid robotics and industrial automation, Chinese innovation is accelerating across the stack. In biotech, over 30% of global drug licensing deals now originate in China. In humanoid robotics, China uniquely combines world-class AI capabilities with unmatched manufacturing scale, making it the most likely candidate to lead the next platform shift.
This is not just about catching up. In many areas, China is beginning to overtake
Autonomous driving is one of the clearest frontiers. In May, we spent over an hour inside a robotaxi in the heart of Guangzhou’s midday traffic. The vehicle drove with caution – often too much – and was regularly cut up by aggressive human drivers, but this was not a demonstration. It was a commercial, driverless vehicle, operating in real life in one of China’s most complex urban environments. The future is not pending; it is already here.
China’s technology leaders in autonomous driving are not only scaling across Chinese cities but also exporting their systems to the Middle East, south-east Asia and beyond.
 |  |
| Note: (1) Sitting in an overly cautious robotaxi in Guangzhou’s hectic traffic for over an hour; (2) a control room for robotaxis | |
This is not just a story about innovation. It is a story about substitution and, increasingly, preference. China is fast becoming the go-to technology partner for emerging markets seeking sovereignty, scale and speed. The equity market is beginning to recognise that shift.
Portfolio implications: Positioned for change
We remain constructive on Chinese equities and continue to see compelling opportunities in three secular themes.
- Innovation everywhere: China’s innovation ecosystem is broadening and accelerating. From AI deployment to humanoid robots, from biotech breakthroughs to autonomous driving, the Fund invests in the disrupters not the disrupted.
- Rise of Chinese multinationals: BYD, TikTok and Xiaomi are just the beginning. A new generation of Chinese firms is going global, not only in consumer markets but also across industrial and tech verticals as its supply chains internationalise, backed by competitive cost structures and technological sophistication. We have positioned the Fund to benefit from the growth of these ambitious Chinese multinationals in the Global South and beyond.
- Consumption recovery: Chinese consumers remain cautious, but they are sitting on record-high levels of savings. As business confidence returns and policy support filters through, spending should follow. On the equity side, many of China’s strongest consumer brands have been deeply derated, trading at compelling valuations relative to their quality and long-term growth potential. Combined with the structural trend of local brands gaining share from global incumbents, this presents a durable and asymmetric opportunity for long-term investors.
The past five years have scarred many investors in Chinese equities, but scars are often signs of healing. With perception, policy and technology aligned for the first time in years, the macro and micro narratives in China are finally converging – upwards.
