Deep Seek “Deep-Sixes” Global Semiconductor Stocks

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So much for the quiet pre-holiday trading session as Asian equities were mixed though Australia was closed for Australia Day, Indonesia was closed for Al Isra’ wal-Mi’raj, South Korea was closed for the Korean New Year, and Taiwan was closed for Chinese New Year.

Mainland China and Hong Kong-listed hardware and technology plays, especially semiconductors, were not immune to DeepSeek’s impact on the global AI ecosystem. The Hong Kong-listed Semiconductor Manufacturing International (SMIC) fell -7.63%. Meanwhile, Mainland-listed communication and electronic component makers were hit hard.

DeepSeek AI highlights the concentration risk of the S&P 500 and global overweight to US stocks globally. Does diversification make a comeback in 2025? We shall see! Mainland investors may have been more apt to hit sell today as it was the last trading day until next Wednesday. The ETFs favored by China’s “National Team”, i.e. investment firms associated with sovereign wealth, had above-average volumes, though they were unable to offset the selling as investors pocketed some vacation cash.

Mainland media outlet Yicai noted that the new electronics trade-in subsidy had led to 10.8 million smartphone and smartwatch purchases in the first four days! Amazing!

The China Securities Regulatory Commission (CSRC), China’s SEC, released the “Action Plan for Promoting the High-quality Development of Index Investment in the Capital Market” though clearly the release didn’t impact the market.

Hong Kong-listed internet stocks were largely higher led by Tencent, which gained +1.29%, Alibaba, which gained +2.95%, Meituan, which fell-0.20%, Kuaishou, which gained +3.82%, JD.com, which gained +1.03%, Baidu, which gained +3.92%, and Trip.com. which gained +1.75%. Mainland investors bought a very healthy net $1.17 billion worth of Hong Kong-listed stocks and ETFs today.

January’s “official” Manufacturing PMI was 49.1 versus an expected 50.1 and November’s 50.1 while the Non-Manufacturing PMI was 50.2 versus expectations of 52.2 and November’s 52.2. I didn’t submit an estimate, but, if tariff front running occurred, how do you not expect December PMIs to fall?

Hong Kong is open tomorrow but Mainland China is closed.

It is interesting to see US agriculture stocks and futures perking up. Last Tuesday, I noticed China’s General Administration of Customs (GACC) stopped soybean imports from five Brazilian firms due to “plant health requirements”. I wonder if the US and China are further along in a trade deal talks as US agriculture purchases, along with Boeing airplanes, are obvious areas of where China can raise US imports?

The Hang Seng and Hang Seng Tech indexes gained +0.66% and +0.64%, respectively, on volume -7.81% from Friday, which is 108% of the 1-year average. 368 stocks advanced while 125 stocks declined. Main Board short turnover increased +4.25% from Friday, which is 108% of the 1-year average, as 15% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and small caps outpaced the value factor and large caps. The top-performing sectors were Utilities, which gained +1.65%, Real Estate, which gained +1.65%, and Consumer Discretionary, which gained +1.55%. Meanwhile, the worst-performing sector was Information Technology, which fell -0.27%. The top-performing subsectors were media, consumer durables, and paper & packaging. Meanwhile, semiconductors, electrical equipment, and technology hardware were among the worst-performing subsectors. Southbound Stock Connect volumes were 1.5x pre-stimulus levels, as Mainland investors bought a net $1.17 billion worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, a large net buy, Tencent, a moderate net buy, ZTE, Xiaomi, Meituan and Alibaba. Meanwhile, SMIC and Kingsoft Cloud were small net sells.

Shanghai, Shenzhen, and the STAR Board fell -0.06%, -1.30%, and -2.03%, respectively, on volume that decreased -8.61% from Friday, which is 102% of the 1-year average. 1,790 stocks advanced while 3,189 stocks declined. The value factor and large caps fell less than the growth factor and small caps. The top-performing sectors were Utilities, which gained +1.77%, Energy, which gained +1.05%, and Materials, which gained +0.77%. Meanwhile, the worst-performing sectors were Information Technology, which fell -2.94%, Real Estate, which fell -1.46%, and Industrials, which fell -0.73%. The top-performing subsectors were motorcycles, ports, and power equipment. Meanwhile, communication equipment, electronic components, and power generation equipment were among the worst-performing subsectors. Northbound Stock Connect volumes were just above average. CNY and the Asia Dollar Index posted small losses versus the US dollar. Treasury bonds rallied. Copper and steel rose.

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