DeepSeek, tariff relief fuel rally in Chinese tech stocks

The Hang Seng Tech Index, which tracks the 30 largest technology companies listed in Hong Kong, advanced 5.6% on Friday, bringing its gains this year to 24%. The index topped an October high that came after Beijing raised hopes for more government support and fiscal stimulus measures to boost the economy.

The sudden emergence of Chinese AI company DeepSeek hit U.S. technology stocks two weeks ago and has fueled investors’ optimism in China’s tech shares.

Chinese video-streaming company Bilibili and AI company SenseTime Group were among the session’s top gainers, advancing 15% and 7.7%, respectively. Alibaba Group’s shares touched a three-year high, while e-commerce giant JD.com climbed 7.6% and Tencent gained 7.4%.

Chinese health-tech stocks were broadly higher in Hong Kong. Alibaba Health Information Technology surged 29% and JD Health International increased 7.6%.

Artificial intelligence is driving new opportunities in the healthcare sector, with various players adopting DeepSeek, which is helping to speed up AI integration in the industry, Bocom International analyst Ethan Ding said in a note.

China’s recent AI breakthrough could boost the efficiency of its healthcare sector and enable other potential novel services, Jefferies analyst Cui Cui said.

These stocks aren’t direct beneficiaries of the AI concept, but they likely rallied due to their significant underweight positions and the fundamental shift in market sentiment after the Biosecure Act wasn’t passed under the Biden administration, Cui said in an email.

Whether the DeepSeek-driven rally has more room to run remains to be seen.

HSBC analysts said near-term headwinds could emerge for China’s AI-related stocks. AI-related stocks, ranging from hardware to software and applications, currently account for more than 50% of the A share market turnover, though they make up only 15% of the market capitalization, they said in a research note. The analysts cautioned that these stocks could have stretched valuations, with their shares trading at the high end of their historical prices since 2019.

Still, from a long-term perspective, these tech stocks have sufficient upside for a rerating, the analysts said. China’s “stock market has yet to reflect China’s improving innovation capability," they said.

The market mood was also supported by relief over a lack of reciprocal tariffs for now.

The dollar fell to a two-month low against a basket of currencies after President Trump announced plans for reciprocal tariffs to be assessed by country, stopping short of imposing the levies immediately, as many foreign capitals feared.

Markets are temporarily shaking off the threat of reciprocal tariffs, ING strategists said in a note.

“But reading through the details of the basis on which reciprocal tariffs will be delivered is mind-blowing," they said, adding that factors like various subsidies, regulations and import tariffs would have to be considered country by country in reports that U.S. federal agencies are expected to deliver by April 1.

“Markets found a renewed sense of relief overnight, as initial worries over the implementation of U.S. reciprocal tariffs this week did not materialize," said Yeap Jung Rong, market strategist at IG.

The “dynamics seems different from the ‘strike first, talk later’ approach seen in the 2018 trade war," Yeap said in a note. This renewed strategy gives “trading partners some runway for negotiations and room for consensus to be reached," he said.

–Sherry Qin contributed to this article.

Write to Kimberley Kao at kimberley.kao@wsj.com