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Portfolio Manager Insights
Digging deeper on China’s ‘DeepSeek moment’
The January 2025 launch of DeepSeek, a groundbreaking large language model (LLM) by a Chinese AI startup, marked a pivotal moment for China’s technology sector and beyond, according to Fidelity’s Ivan Xie.
- In late January, the release of a free large language model by a Chinese artificial intelligence startup, DeepSeek, was notable for more than its rattling of U.S. investment markets, according to Fidelity Portfolio Manager Ivan Xie, who views DeepSeek’s emergence as a bold declaration of China’s relevance in the high-stakes race for AI supremacy and more.
- “While Western peers have had a head start in developing LLMs, China has proven its ability to innovate, despite formidable challenges,” explains Xie, who, alongside Peifang Sun, co-manages Fidelity Advisor® China Region Fund. “Indeed, DeepSeek reshaped the narrative around China’s role in global AI development.”
- In helming the regionally focused equity fund, Xie and Sun primarily own stocks in China, Hong Kong and Taiwan. They seek growth at a reasonable price among the portfolio’s core holdings, and opportunistically invest in cyclically depressed stocks and/or turnaround stories with an attractive risk/reward profile.
- Xie believes DeepSeek is notable because it was developed despite restricted access to crucial advanced graphics processing units made by U.S.-based Nvidia.
- “DeepSeek’s open-source model provides the Chinese AI community a homegrown LLM foundation upon which to build AI infrastructure and applications, reducing reliance on U.S. technology and mitigating related geopolitical risk,” he points out.
- As Xie and Sun look to build on this momentum, the fund has outsized exposure to a number of Chinese tech stocks as of July 31, including Tencent Holdings, which they believe stands to gain from further AI development.
- Xie adds that the DeepSeek moment has reverberated far beyond just the technology sector, serving as a wake-up call for investors to reevaluate other innovation-driven industries in China.
- For example, since the onset of China’s bear market in 2021, groundbreaking advancements in biotechnology have gone largely unnoticed by market participants due to broader macroeconomic concerns, according to Xie.
- Here, Xie cites the fund’s exposure to several Chinese biotech firms that have developed best-in-class drugs, which, in turn, were successfully licensed to Western pharmaceutical companies.
- Case in point, Zai Lab, a research-driven, commercial-stage biopharmaceutical company based in China and the U.S., is at the forefront with its focus on oncology, immunology, neuroscience and infectious disease, all of which Xie believes make it an influential industry player.
- “Even amidst ongoing market volatility fueled by U.S.–China tariff tension, the downstream implications and corresponding investment opportunities stemming from the DeepSeek moment are undeniable,” Xie concludes.
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Fidelity Advisor China Region Fund (FHKIX)
Seeks to provide capital appreciation.
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