The recent surge in interest surrounding Deepseek has sent ripples through both the Chinese and global tech marketsThis revolutionary AI application hasn't just captured the imagination of tech enthusiasts; it has also reinvigorated a vast segment of China's technology stocks, attracting significant foreign investment and attentionSuch a dynamic shift has seen international capital flow into China at remarkable rates, while India, conversely, has witnessed a staggering evaporation of approximately $720 billion from its market within the same period.

This shift raises several crucial questions: Why is there such a stark contrast in the performance of these two Asian giants? What underlying factors contribute to this trend beyond the meteoric rise of Deepseek? As the data points unravel, it becomes apparent that this phenomenon is not solely the result of Deepseek's technological triumph but a reflection of broader economic conditions and investor perceptions.

As we examine this fluctuation, it's essential to recognize the timelineThe end of 2024 and the early part of 2025 marked a pivotal moment when Deepseek emerged onto the scene and quickly garnered widespread attentionThe rapid influx of hedge funds into the Chinese stock market was unprecedented, pushing the combined total market capitalization in both onshore and offshore markets to exceed $13 trillionThis liquidity boost has been monumental, facilitating a technical bull market for the Hang Seng Tech Index, which soared impressively during this timeframe.

In stark contrast, India has not only seen its market capital diminish but has suffered significant declines in its stock indexesThe Sensex, one of the leading indices in India, plummeted by over 2,300 points in just five daysMany institutional investors began adjusting their portfolios, which led to a concerning trend of divesting from Indian stocks in favor of increased holdings in promising Chinese alternatives.

It’s worth noting that while the success of Deepseek accounts for a portion of this financial shift, underlying issues had already begun to encourage foreign capital flight from India, which can be traced back to October 2024. These conditions laid the foundation for Deepseek's rise to further amplify these existing dynamics.

At the heart of Deepseek's allure lies its cost-effectiveness compared to its competitors, such as OpenAI

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Investors worldwide have begun to recognize that China possesses capable enterprises with significant innovation potential in the AI sectorIn fact, the MSCI China Index currently enjoys a trailing P/E ratio of only 11 compared to India's staggering 21. This represents a considerable valuation gap, suggesting that Chinese technology stocks like Alibaba still present considerable untapped value and growth potentialFor instance, Alibaba's market capitalization soared by $100 billion within just one month, all while maintaining a lower P/E ratio than its Indian counterparts.

Moreover, the surging interest in Deepseek coincided with a wave of favorable policymaking in China regarding technology commercialization and fortifying the AI sector’s potentialThis supportive environment has elevated investor confidence, propelling further capital into the Chinese market.

One should consider that innovation and underlying competitive advantages are imperative for sustained success in the tech industryDeepseek is merely a glimpse into the broader narrative of China's rising technological prowessThe so-called "Six Little Dragons of Hangzhou," including companies like Shensen Qiusuo and Yushuqike, are thriving in their respective niches, showcasing the strength and future promise of China's tech landscape.

Meanwhile, India, which has seen remarkable economic growth over the last several years—vaulting from the 10th largest economy to the 5th—faces a different realityThe rapid growth has unveiled a complex picture of economic disparities and imbalancesIndia's economic ascent has often been attributed to its burgeoning service sector, which it proudly exports, alongside Western investment and supportNevertheless, this profitable duality drew irritation from the U.S. government, leading to significant tensions in trade and investment as observed in December 2024, where substantial capital fled the Indian markets amidst grievances against top Indian industrial players.

The situation worsened significantly following the inauguration of a new American president who imposed hefty tariffs on steel and aluminum imports alongside reciprocal tariffs with global trade partners

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