A year after the launch of DeepSeek’s artificial intelligence model, China’s equity market has undergone a significant repricing.
The rally through 2025 has been notable. The MSCI China Index outperformed major global markets, with technology and AI-related companies at the centre of the recovery. DeepSeek’s announcement early in the year helped reset expectations at a time when investor positioning in China was light and valuations were already compressed. Subsequent AI and technology listings in Hong Kong attracted strong demand, reinforcing the sense that risk appetite had returned.
However, a change in sentiment does not automatically equate to structural improvement. Eighteen months ago, concerns around regulation, geopolitics and economic momentum weighed heavily on Chinese equities. A portion of the recovery therefore reflects multiple expansion as perceived risks moderated. The more important consideration for portfolio construction is whether company fundamentals are evolving in ways that support sustained earnings growth and capital discipline.
There are signs that the underlying picture is strengthening. Domestic AI models have improved in performance across a broader range of applications, and the gap with leading international peers appears to have narrowed. Chinese developers have largely adopted open-source approaches, with comparatively low token pricing. Lower costs reduce barriers to adoption, potentially accelerating integration across enterprise and consumer platforms.
DeepSeek should be viewed as the product of long-term investment rather than an isolated event. Private sector research and development spending in China has increased at an annual rate exceeding 20 per cent over the past 15 years. That sustained commitment is now visible across robotics, autonomous systems, next-generation mobility and advanced manufacturing.
This broader exposure is relevant for active managers. Fidelity China Special Situations PLC has positioned its portfolio to capture opportunities arising from structural technological progress, assessing companies on their competitive positioning, scalability and return on capital.
Fidelity China Special Situations PLC (LON:FCSS), the UK’s largest China Investment Trust, capitalises on Fidelity’s extensive, locally-based analyst team to find attractive opportunities in a market too big to ignore.
