AI surge fuels optimism on A-share market

While the surge of Chinese domestic artificial intelligence companies has led to upbeat sentiment in the A-share market recently, the inflow of more long-term and patient capital and improving fundamentals will be the major drivers of the market's bullish performance in a more sustained manner, said experts.

Although the benchmark Shanghai Composite Index and Shenzhen Component Index declined 0.42 percent and 0.77 percent, respectively, on Thursday, trading remained vibrant, as the combined trading value at the Shanghai and Shenzhen bourses topped 1.8 trillion yuan ($250 billion), up 5.9 percent from a day earlier. This marked the 17th consecutive trading day that the trading value stood above the 1-trillion-yuan level.

Zhang Jiqiang, head of the research institute of Huatai Securities, said that trading capital in the A-share market has increased significantly since Spring Festival. The activity level of financing transactions has reached a new high since mid-November. The net inflow of retail funds exceeded 40 billion yuan from Feb 5 to 7, the highest level since mid-November.

The performance of property developers, which are market heavyweights, was worth noticing on Thursday when the A-share market fluctuated. The sector rallied for the second consecutive day by 0.79 percent. These companies have seen their prices rise 6.3 percent since trading resumed on Feb 5 after the Spring Festival holiday.

This can be largely attributed to the progress that leading property developers have made in addressing their debt pressures.

Shenzhen-based China Vanke announced on Monday that Shenzhen Metro, its largest shareholder, plans to provide a 2.8-billion-yuan loan, with which Vanke will repay debt in the open market.

Country Garden, another major developer, said on Jan 9 that it has proposed a deal to restructure offshore debt worth $10.3 billion, providing its creditors with multiple options including converting debt into cash and extending the maturity. At the end of November, Sunac China Holdings proposed restructuring plans for 10 debts in the onshore market, of which eight have been supported until now.

Gloomy expectations about US tariff policies and A-share companies' business results suppressed market sentiment before the holiday, but since these have been released after the holiday, and catalyzed by the DeepSeek surge, market sentiment has been buoyed, said Zhang from Huatai Securities.

Similarly, China's hedge fund managers' confidence index for A shares rose 2.2 percent on a monthly basis in February, with technology companies as their focus, according to private market tracker Simuwang.

Qiu Xiang, chief strategist at CITIC Securities, said the revaluation of A-share AI companies has served as a major catalyst of sentiment in the first half of February. During this period, risk appetite picked up, with the bullish sentiment immediately priced in and trading activities being quite extreme.

As such a mood gradually cools down, investors' defensive demand will increase and less-volatile stocks will be more preferred, he said.

Indeed, companies that previously benefited from the DeepSeek surge underwent some significant price adjustments on Thursday. Zhejiang Daily Digital Culture Group and MeiG Smart Technology, which both touched the daily price increase limit of 10 percent for six consecutive days since Spring Festival, saw their prices plunge 7.18 percent and 9.54 percent, respectively, on Thursday.

The current success of DeepSeek is mainly represented by spiking user traffic. The success of AI companies in the medium term is defined by the proliferation of AI-related devices and the wider application of AI, said Chen Guo, chief strategist at China Securities.

Companies' improving profitability is also key to the sustained bullish performance of these listed AI companies, he said.

Zhang, from Huatai Securities, said the medium- and long-term bull market in A-shares is inseparable from the recovered trading enthusiasm of foreign investors and the inflow of more long-term capital.

The guideline to promote the inflow of more medium to long-term capital released by top regulators earlier this year is likely to usher in the inflow of more annuity, which has a higher risk appetite, as well as more insurance capital by lowering the latter's investment risks, he said.

The People's Bank of China, the nation's central bank, said on Thursday that it will continue to complete the design of various tools to facilitate the high-quality development of the Chinese capital market.

As of the end of January, it has conducted two operations under the Securities, Funds and Insurance Companies Swap Facility, totaling 105 billion yuan. This has led to a significant increase in the scale of proprietary stock investment by securities companies.