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China equity issuance doubles as tech race draws back global investors

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China equity issuance doubles as tech race draws back global investors
Global investors are increasingly re-rating mainland China's stock markets after two years of sitting on the sidelines, which bankers said will help drive renewed activity in a market where equity issuance doubled in January-March versus a year earlier.

Easing government scrutiny of technology majors and the emergence of disruptive AI software developer DeepSeek are big enough draws even for overseas investors wary of the impact of Sino-U.S. tit-for-tat import tariffs, bankers and advisors said.

Total equity issuance from Chinese firms in the first quarter reached $16.8 billion, LSEG data showed, 119% more than a year earlier.

"The psychology of investors has changed. From many believing China was not investible, many now think this is a re-rating process," said James Wang, head of Asia ex-Japan Equity Capital Markets at Goldman Sachs.

"The risk recognition remains, but it has shifted to the search for opportunities. This is apparent from the long-onlys, whose presence is growing stronger and stronger."

In financial hub Hong Kong, the benchmark Hang Seng Index (.HSI), is up 21% this year making it the best-performer among international peers, LSEG data showed. On a 12-month basis, the index is trading at a 12-month price-to-earnings ratio of 10.5x The MSCI China index (.dMICN00000PUS), 12-month P/E ratio is at 11.7 times versus the MSCI U.S. (.dMIUS00000PUS), at 20.3 and S&P500 (.SPX), at 20.5. Indian markets average 18 to 19.99.

"The world's second-largest economy is offering global investors stock valuations at 40% less than other markets," Wang said.

"The various micro policies by the Chinese government and DeepSeek have reinforced the perceived value of Chinese stocks, making the valuation gap more apparent and providing downside support for investors."

Drawing investors is a shift in dynamics in the tech sector. A summit led by President Xi Jinping with top tech leaders last month was widely seen as a sign that strict government scrutiny of the sector which began in 2020 was easing.

In January, DeepSeek roiled global financial markets when it announced AI products at a fraction of the cost of major rivals. The government has since indicated willingness to increasingly back private enterprise, especially in the technology sector.

"The emergence of DeepSeek has prompted a fundamental shift in the way global investors are looking at China and the Chinese government is looking at AI and quantum computing," said Harish Raman, Citigroup's Asia head of ECM execution and solutions.

"That is very encouraging, and an endorsement to Chinese private companies, especially those focused on AI, quantum, semis, microelectronics. Investors are seeing this as a positive development, prompting some to come back.

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