DeepSeek Adoption Sparks $1.3T China Stock Surge as Funds Pull Out of India

Key Takeaways

• DeepSeek-inspired optimism has fueled a Chinese stock market rally.
• Big Tech firms, including Tencent and Baidu, are among those looking to integrate DeepSeek’s AI.
• To buy Chinese stocks, investors have reallocated capital from India.

In the space of a month, global investors who are optimistic about DeepSeek’s AI breakthrough have channeled more than $1.3 trillion into China’s stock market.

Meanwhile, as institutional investors redirect capital toward China’s booming technology market, Indian companies have lost more than $720 billion of market capitalization, a recent analysis found.

China’s Gain Is India’s Loss

Since DeepSeek R1 was released on Jan. 20, the Shanghai Composite and the FTSE China have gained over $200 billion in market capitalization each. Other mainland indices and Hong Kong’s Hang Seng also registered significant gains in the same period.

In contrast, India’s BSE Sensex and Nifty 50 have both declined since the beginning of February.

An analysis of regional allocations by some of the largest Asian equity funds reveals that most have reduced their exposure to Indian stock and increased their Chinese holdings in recent months.

According to Goldman Sachs , so far in 2025, Chinese equities have been the “most notionally net bought market” on the bank’s prime brokerage book. Meanwhile, hedge funds purchased more Chinese stock in the first week of February than in any week since October.

Meanwhile, foreign investors offloaded $10 billion worth of Indian stocks in the first six weeks of 2025.

DeepSeek Adoption Spurs China Tech Rally

China’s latest market rally comes at a time of uncertainty for the country’s economy. American tariffs on Chinese goods pose the highest risk to manufacturing businesses and exporters.

However, Beijing’s retaliatory measures will also be felt by firms that import from the U.S.

Against this backdrop, surging share prices can be attributed to two factors: the expectation of government tariff relief and optimism surrounding the country’s AI success.

With DeepSeek offering world-leading AI models at a fraction of the price of its American counterparts, Chinese companies have been among the first to embrace the new technology.

Big Tech giants Tencent and Baidu are both exploring the possibility of integrating DeepSeek R1 into their respective platforms: WeChat and Baidu Search.

Interestingly, both companies have embraced the new model despite operating their own rival AI platforms—Tencent’s Yuanbao and Baidu’s Ernie.

DeepSeek’s success has also lit a fire under China’s open-source AI scene.

Having resisted opening up its proprietary AI platform for years, on Feb. 14, Baidu announced that the next Ernie model would be free to use and modify, bringing it in line with open-source alternatives from DeepSeek and Alibaba.

Tencent Stock Rallies on WeChat-DeepSeek Integration News

After Tencent announced on Sunday that it was testing a new WeChat feature powered by DeepSeek R1, the firm’s share price surged, climbing nearly four percent in 24 hours.

The pilot feature uses DeepSeek’s model to power WeChat’s AI search, which currently relies on Yuanbao.

Meanwhile, Tencent is also considering integrating R1 into other products, including its code assistant and the Yuanbao chatbot itself, Reuters reported.