• Optimism over China’s tech prowess has powered a recent rally

• Exceeding October peak will take gauge to highest since 2022

Chinese stocks in Hong Kong extended a recent rally as the nation’s growing capabilities in artificial intelligence boosted optimism over the market’s outlook.

The Hang Seng China Enterprises Index jumped as much as 2.7% on Friday, getting closer to topping an October peak following a stimulus blitz. Exceeding that level will take the gauge to the highest since February 2022. Xiaomi Corp, Tencent Holdings Ltd. and Meituan contributed the most to the advance. The CSI 300 Index, an onshore benchmark, climbed 0.6%.

China is fast catching up with the global AI frenzy after missing out in the past few years. AI startup DeepSeek’s prowess has served as a wake-up call for investors who had underestimated the nation’s growth potential in the sector, and led to a broader re-evaluation of the beaten-down equity market.

The DeepSeek revelation “is a reflection that China is making progress on its new productive forces and self sufficiency goals,” said Marvin Chen, a Bloomberg Intelligence strategist. “The tech momentum may carry the market into March,” when attention turns to the Two Sessions meeting and corporate earnings as the next driver, he added.

Adding to the wave of optimism are signs that Donald Trump’s tariffs on Chinese products — 10% in the initial offensive — may turn out to be less drastic than feared.

While global money managers have been burnt by the Chinese market’s ups and downs over the past few years, some now see the odds of a more durable rally this time around.

Deutsche Bank called the ongoing tech progress a “Sputnik moment” for the country, while a trader note by Goldman Sachs Group Inc. said hedge funds are purchasing Chinese shares in large chunks, driven almost entirely by long buys.

But skeptics worry that the AI buzz may have taken the rally too far, with stocks that announce any cooperation with DeepSeek seeing knee-jerk gains.

“At the end of the day, you don’t really know what the potential monetization opportunities are over the medium to longer term,” Helen Zhu, chief investment officer for NF Trinity, said in a Bloomberg TV interview. There’s “potential uncertainty on whether what DeepSeek has been able to do can be repeated,” she added.

Bulls are hoping Beijing will unleash further stimulus at the Two Sessions — the annual meetings of China’s top legislative and advisory bodies — helping to sustain the market’s upward trend. Added policy support is crucial with the property sector still struggling and the economy remaining lackluster.

The Hang Sang gauge of Chinese stocks has gained over 12% so far in 2025, among the best performances in Asia. It is less than 2% away from taking out the October peak.