Emerging-market equities hit 3-month high as China’s tech-fueled by DeepSeek AI

Emerging-market equities surged to a three-month high, driven by a rise in sentiment from China. This was fueled by Tencent Holdings Ltd.’s integration of DeepSeek’s AI model and Beijing’s signal of support for the private sector, which was seen as crucial for sparking economic recovery.

The MCSI index of emerging market equities rose 0.5%, with Tencent as its second largest index constituent, reaching its highest level since  2021. 

This rally followed the first use of DeepSeek’s AI model on Tencent’s WeChat platform, a major step up in the software’s use by several government and service organizations in China. According to DeepSeek, its AI model is more efficient than the ones provided by US-based companies. 

A market strategist at Tiger Brokers in Singapore, James Ooi, noted that the current upsurge in the Chinese tech sector on the back of DeepSeek is likely to persist in the short term, given the relatively cheap valuations. He noted that there is optimism that China’s tech innovation may outperform that of the US and the growing use of AI.

Xi’s meeting with business leaders fuels optimism for China’s market reforms

Chinese President Xi Jinping’s meeting with prominent entrepreneurs strengthened positive sentiment toward emerging equities, fueling hopes that the country’s authorities may adopt a more business-friendly stance. The nation’s top leaders were invited to the event, including Alibaba Group Holding Ltd. co-founder Jack Ma and DeepSeek founder Liang Wenfeng.

Strategists at Nomura Holdings, including Chetan Seth, highlighted in a Feb. 16 note that Chinese tech stocks, particularly those embracing AI innovation like DeepSeek, remain an attractive proposition for Asian investors. They added that DeepSeek has reignited investor interest in Chinese companies’ technological capabilities, and these developments should reduce the discount on China stocks relative to U.S. tech shares.

The gains in emerging-market equities came despite thin trading volumes, with U.S. markets closed for the President’s Day holiday. MSCI’s currency index increased by 0.1%, though the Chilean peso slipped 0.7%, the worst performer among developing world currencies, as copper prices retreated.

In Latin America, the S&P Merval benchmark of Argentina fell sharply by 5.7% in one day, the biggest one-day drop since July, after new President Javier Milei promoted Libra cryptocurrency. The controversy surrounding the cryptocurrency has led to an internal investigation by the government, which has only added to the confusion in the market.  

However, the dispute between the US and Panama over the management of the Panama Canal remains active. The canal’s administration hired Vinson & Elkins to protect its interests after former US President Donald Trump showed interest in seizing control of the vital trade route.

Ukraine peace talks stir market volatility in Eastern Europe

In the Eastern European region, assets’ performance varied as the prospects for the signing of the peace agreement in Ukraine remained uncertain. Nonetheless, the exclusion of some of the European Union member states from the abruptly organized summit in Paris killed the market enthusiasm.  

The United States and Russian officials are due to hold talks on Ukraine on Tuesday in Saudi Arabia, following last week’s phone call between President Donald Trump and Vladimir Putin on finding ways to resolve the war. Ukraine’s President Zelenskiy noted that any agreements without Ukraine’s involvement will not be recognized.

Some of Ukraine’s dollar bonds weakened, including the zero-coupon bonds of 2035, which fell for the second consecutive day. According to Nick Rees, the head of macro research at Monex Europe Ltd., the Russia-Ukraine peace negotiations are back in the spotlight, and the markets are starting to understand that any settlement will be contentious.  

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