Deep value

Sceptics who wonder whether artificial intelligence technology actually does anything useful now have an answer: it can reopen stock markets.

Primary activity in China’s onshore market has been sluggish since August 2023, when authorities slowed the pace of approvals. Part of the reason was to conduct more pre-listing inspections of companies to raise standards, but authorities were no doubt hoping that in the absence of new listings investors would buy in the secondary market and drive up share prices. Hundreds of IPO hopefuls withdrew their applications last year as they gave up hope of winning a green light.

Now, though, there are signs that the pipeline is thawing.

Last week, Wintech Nano (Suzhou) launched a Rmb366m (US$51m) IPO while Sidea Semiconductor Equipment (Shenzhen) opened books for a Rmb556m float, while the Shanghai Stock Exchange accepted its first listing application of the year.

The key factor is that all are in the technology sector. The two live deals are from companies supplying the semiconductor industry, which has attracted extra attention in China since the launch of DeepSeek’s low-cost AI model in January.

DeepSeek’s breakthrough did two things – it made investors question whether their revenue forecasts for US tech companies were overoptimistic, and generated new enthusiasm for Chinese stocks.

China’s main index – the CSI 300 – is up around 5% this year, while Hong Kong’s Hang Seng Tech index, which includes many giant technology companies like Alibaba and Tencent that are not listed in the mainland, is up 30%.

More importantly, the Chinese government is now fully behind the tech sector. A crackdown on monopolistic practices by big tech companies was sparked by Alibaba co-founder Jack Ma’s criticism of regulators at a conference in 2020, but seemed to come to an end in 2023. Ma was even welcomed back to a government symposium in February this year, at which the government signalled it wanted the growth of tech sector to help drive the economy.

Granting IPO approvals to tech-related companies is a crucial step in ensuring they can access the capital they need to grow. After establishing themselves in the A-share market, they could attempt follow-on listings in Hong Kong to access a broader pool of capital.

Of course, the hype around the tech sector, and artificial intelligence in particular, risks driving share prices up to levels they can’t sustain, as happened in the US. But if it encourages China to continue increasing spending on research and development, it will still drive economic growth.

Investors in the US have learned not to fight the Fed. In the Chinese market, they shouldn’t ignore the signals the government is sending about which industries to watch.