Tech gains help China outperform US in stock market battle

The struggle for world supremacy between the United States and China is being waged on the trade and technology fronts, but the rivalry also extends to the capital markets, where Beijing is winning by a landslide. The Hang Seng index of the Hong Kong Stock Exchange is up more than 20% so far this year and the CSI 300 of mainland China is up more than 3%, contrasting with the increasingly negative balance in 2025 for Wall Street stocks.

The difference is even more notable if we compare the stock market performance of the technology sector: the Hang Seng Tech, the index that includes the 30 largest technology companies listed on the Hong Kong Stock Exchange, has risen by 35% this year. On Tuesday, it resisted the sell-off in tech stocks on Wall Street, where the Nasdaq Composite — which has already lost nearly 10% so far this year — recorded its worst day since September 2022.

International investment is focusing on China. The MSCI China index is up another 19% so far this year, in what is the best start to a year in its history. And its 29% rise from the previous low to the high is the third highest ever recorded by this index, behind only the recovery after the great financial crisis and with the reopening after the Covid pandemic.

The Chinese stock market, which in recent years has delivered major disappointments to investors and is still far from its 2021 highs, has started 2025 on a very different course in spite of the crude trade battle waged by Trump. Factors playing in favor of the Chinese stock market include U.S. tariffs that, while forceful, are not as aggressive as the market had expected; greater optimism about its economy and the recovery of domestic demand and, above all, the dazzling emergence of DeepSeek. This new open source artificial intelligence model, much cheaper and more efficient than those known to date, has challenged U.S. dominance and marked a turning point in the tech industry that is clearly reflected in company share prices.

The so-called Magnificent Seven of the U.S. stock market are losing some of their magnificence in 2025, in a trend accelerated by the emergence of Deep Seek in an industry with sky-high stock market valuations. The emergence of this Chinese company has changed the perception that it would take years for Beijing to catch up with the U.S. in artificial intelligence, if it ever could.

Goldman Sachs estimates that the widespread adoption of artificial intelligence in the business fabric could raise earnings per share in China by 2.5% annually over the next decade, thereby increasing the break-even point of the Asian giant’s stock market valuations by 15% to 20%, with a potential for investment flows of more than $200 billion.

The share price balance also shows the rotation from U.S. to Chinese technology at the start of the year. While the Magnificent Seven as a whole are in negative territory, the newly-named Chinese fab four are up sharply: Alibaba, up 64% on the Hong Kong Stock Exchange; Tencent, up 24%; Xiaomi, up 58%; and Baidu, up 14%.

Questions about the economy

In such an uncertain year, the Chinese economy is also showing signs of optimism, although U.S. tariffs and the persistence of its real estate crisis and the need for a boost to domestic demand are cause for caution. Deflation is also a threat, as the Consumer Price Index fell by 0.7% in February, its first decline since January 2024.

The U.S. bank Citi has just raised its GDP growth estimate for China this year and the next: from 4.2% to 4.7% in 2025 and from 4.1% to 4.8% in 2026, still below the 5% expected this year by Chinese authorities. “2025 could be a watershed year. The new economy is gaining traction and the old economy is seeing the light at the end of the tunnel. Stabilization of the housing market is underway and would lead to a recovery in consumption,” said analysts at Citi.

But the bilateral tension between the U.S. and China has many facets beyond tariffs, and Goldman Sachs points to the risk of possible regulatory restrictions that could extend the limitations for U.S. investments in China or accounting and reporting standards for Chinese ADRs ( American Depositary Receipts), the formula under which companies such as Alibaba or Baidu are listed on Wall Street.

In the extreme case that the U.S. prohibits investment in Chinese listed companies, Goldman Sachs calculates that the possible liquidation of positions could exceed $800 billion, representing a financial earthquake that could in itself become yet another threat.

Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition