(Yicai) Feb. 19 -- The MSCI Emerging Markets Index, which measures the performance of emerging market equities, reached its highest level earlier this week since November last year, buoyed by a number of Wall Street banks and asset management firms setting higher expectations for the Chinese stock market as confidence grows amid an artificial intelligence boom and supportive economic stimulus measures.

The MSCI Emerging Markets Index surged to 1,137.43 points on Feb. 17. And the index's second-largest weighted stock, Tencent Holdings, climbed 3.96 percent to HKD493.60 (USD63.40), its highest level since July 2021, after the internet behemoth said that it will integrate the highly popular DeepSeek AI assistant into its instant messenger WeChat.

DeepSeek has sparked global optimism in Chinese tech, and this is expected to be reflected in the stock markets which are likely to log significant gains, Kinger Lau, analyst at US investment bank Goldman Sachs Group, said in a report published on Feb. 17.

As a result, New York-based Goldman Sachs has raised its 12-month target for the MSCI China Index to 85 points from the previous 75 points, and hiked its forecast for the CSI 300 Index to 4,700 points from 4,600 points.

The widespread adoption of AI could lead to a 2.5 percent annual jump in the overall earnings of Chinese stocks over the next decade, Lau said.

In the past week, Morgan Stanley, JPMorgan Chase and UBS have all expressed a bullish outlook on the Chinese stock market.

Chinese LLMs, represented by DeepSeek, have caught the attention of global investors, as their high performance rivals that of US leading models, and yet they are trained at a fraction of the cost, said Meng Lei, China equity strategy analyst at UBS Securities.

China’s capital market is expected to play a greater role in supporting technological innovation and industrial transformation in the future, Meng said. On the macro policy front, the expansion of the fiscal deficit ratio will lead to higher government spending, which together with further interest rate cuts and reserve requirement ratio reductions, will help boost the valuation of Chinese stocks.

The latest rebound in the emerging markets index, driven by Hangzhou-based DeepSeek, can be attributed to stocks’ relatively low valuations, growing optimism about China's technological innovation potentially surpassing that of the US, and the accelerated adoption and commercialization of AI, said James Ooi, market strategist at Singapore’s Tiger Brokers.

DeepSeek has reignited investor focus on the technological prowess of Asian tech companies, Chetan Seth, analyst at Japanese financial services firm Nomura Holdings, said in a research report released on Feb. 16. These companies are often trading at a valuation discount compared to US tech stocks, prompting investors to favor emerging market equities in Asia. As a result, investors are expected to continue increasing the allocation of Chinese tech stocks within their Asian asset portfolios.

Editor: Kim Taylor