Hang Seng Index: AI Stocks Surge as China’s DeepSeek Shakes Markets – Weekly Recap

Nasdaq Drops on DeepSeek Rout and the Fed

It was a pivotal week for the global markets, with China, corporate earnings, the Fed, and US President Trump influencing sentiment.

The Dow extended its winning streak to three weeks, advancing by 0.27%, while the Nasdaq Composite Index and the S&P 500 fell 1.64% and 1.00%, respectively.

US Corporate Earnings: A Mixed Bag

Several major US companies reported earnings, including Apple (AAPL), Atlassian (TEAM), Caterpillar (CAT), Meta (META), Microsoft (MSFT), Starbucks (SBUX), and Tesla (TSLA). The results were mixed: Apple, Atlassian, Meta, and Starbucks beat estimates, while Caterpillar, Microsoft, and Tesla disappointed.

Notably, Caterpillar (-8.88%), Microsoft (-6.53%), and Tesla (-0.49%) ended with losses. In contrast, Apple (+5.93%), Atlassian (15.85%), Meta (+6.44%), and Starbucks (8.98%) rallied on upbeat earnings.

DeepSeek Sparks AI Meltdown

Beyond earnings, AI stocks suffered significant losses after DeepSeek, a low-cost Chinese AI platform, surpassed ChatGPT on Apple’s App Store downloads rankings. The news triggered an AI stock rout, with Nvidia (NVDA) tumbling 15.81% and Broadcom Inc. (AVGO) sliding 9.57%.

US Economic Data and the Fed’s Stance

The Fed, US GDP numbers, and the Personal Income and Outlays Report further impacted investor sentiment.

• The Fed held interest rates at 4.5% while Fed Chair Powell cautioned against near-term rate cuts, citing inflation risks.
• US economy slowed from 3.1% growth in Q3 2024 to 2.3% in Q4 2024, while inflation accelerated.
• Initial jobless claims dropped from 223k (week ending January 18) to 207k (January 25), reflecting a resilient labor market.
• The US Core PCE Price Index rose 2.8% year-on-year in December, mirroring November’s increase, supporting Fed Chair Powell’s inflation concerns.

Trump’s Tariff Threats Shake Markets

US President Trump continued to dominate the headlines in his second week in office. Notably, Trump threatened BRICS nations with 100% tariffs if they move away from the US dollar. Additionally, he rolled out tariffs on China, Canadian, and Mexican goods.

Hong Kong and Mainland China Markets Diverge

The Hang Seng Index advanced 0.79% in the week ending January 31, extending its winning streak to three weeks. However, it was a shortened week because of the Lunar New Year holidays. The Hong Kong markets were closed between January 29-31, while Mainland China markets are closed between January 28 and February 3.

Sentiment toward China’s AI sector boosted tech stocks, with the Hang Seng Tech Index rallying 1.42%. Tech giants Baidu (9888) and Alibaba (9988) soared 7.66% and 4.19%, respectively. Brian Tycangco, editor and analyst at Stansberry Research, highlighted Baidu Inc. (9888.HK) as the next company to watch in China’s tech and AI space.

In contrast, the CSI 300 and Shanghai Composite fell 0.41% and 0.06%, respectively. Weaker-than-expected NBS private sector PMIs and US tariff uncertainty weighed on investor confidence early in the week.

For more analysis on the Hang Seng Index and global market trends, click here.

Commodities: Gold Rises, Oil Weakens

Commodities had a mixed week ending January 31:

• Gold extended its winning streak to five weeks, rising 0.95% to close the week at $2,797.
• Iron ore futures advanced 0.33% to $106.5. Trump’s silence on China tariffs pushed prices higher.
• Oil prices fall amid rising inventories and news of US tariffs on Canada and Mexico.

ASX 200 Hits Record Highs on RBA Rate Cut Bets

The ASX 200 rose 1.47% in the week ending January 31, marking its fourth consecutive weekly gain. Banking and tech stocks contributed to the gains. The S&P/ASX All Technology Index rallied 3.38%. Softer Aussie inflation numbers cemented bets on a February RBA rate cut, fueling demand for tech stocks.

Falling US Treasury yields supported demand for high-yielding Aussie banks. The National Australia Bank (NAB) gained 1.88%, while Westpac Banking Corp (WBC) jumped 2.15%.

Nikkei Index Flat as Tech Stocks Struggle

The Nikkei Index ended the week flat, with tech stocks under pressure following the DeepSeek news. Additionally, a stronger Japanese Yen amid Bank of Japan rate hike speculation tested demand for export-linked stocks. The USD/JPY pair fell 0.51% to 155.156 in the week. The stronger Yen could weaken earnings and valuations, pressuring Japan’s export-linked stocks.

Among notable decliners, Softbank Group (9984) slumped by 10.88%, while Tokyo Electron (8035) slid by 3.43%.

Outlook: Key Events to Watch This Week

Asian markets face a potentially volatile week. Central Bank forward guidance, China stimulus measures, private sector PMIs, and US-China relations will likely influence market sentiment. Hong Kong and Mainland China markets will also be playing catch-up after the Lunar New Year celebrations.

Hawkish forward guidance, a lack of fresh stimulus from Beijing, and rising US-China tensions could send the Asian markets lower. The US announced 10% tariffs on Chinese goods effective February 1. Conversely, upbeat economic data, dovish central bank stances, and new stimulus in China could counter the market impact of the tariffs.

Traders should closely monitor economic trends to navigate shifting dynamics.