SYDNEY (March 24): Global investors are increasingly re-rating mainland China's stock markets after two years of sitting on the sidelines, which bankers said will help drive renewed activity in a market where equity issuance doubled in January-March versus a year earlier.

Easing government scrutiny of technology majors and the emergence of disruptive AI software developer DeepSeek are big enough draws even for overseas investors wary of the impact of Sino-US tit-for-tat import tariffs, bankers and advisers said.

Total equity issuance from Chinese firms in the first quarter reached US$16.8 billion, LSEG data showed, 119% more than a year earlier.

"The psychology of investors has changed. From many believing China was not investible, many now think this is a re-rating process," said James Wang, the head of Asia ex-Japan Equity Capital Markets at Goldman Sachs.

"The risk recognition remains, but it has shifted to the search for opportunities. This is apparent from the long-onlys, whose presence is growing stronger and stronger."

In financial hub Hong Kong, the benchmark Hang Seng Index is up 21% this year making it the best-performer among international peers, LSEG data showed. On a 12-month basis, the index is trading at a 12-month price-to-earnings ratio of 10.5 times.

The MSCI China index 12-month price-earnings ratio is at 11.7 times versus the MSCI US at 20.3 and S&P500 at 20.5. Indian markets average 18 to 19.99.

"The world's second-largest economy is offering global investors stock valuations at 40% less than other markets," Wang said.

"The various micro policies by the Chinese government and DeepSeek have reinforced the perceived value of Chinese stocks, making the valuation gap more apparent and providing downside support for investors."

Drawing investors is a shift in dynamics in the tech sector. A summit led by Chinese President Xi Jinping with top tech leaders last month was widely seen as a sign that strict government scrutiny of the sector which began in 2020 was easing.

In January, DeepSeek roiled global financial markets when it announced AI products at a fraction of the cost of major rivals. The government has since indicated willingness to increasingly back private enterprise, especially in the technology sector.

"The emergence of DeepSeek has prompted a fundamental shift in the way global investors are looking at China and the Chinese government is looking at AI and quantum computing," said Harish Raman, Citigroup's Asia head of ECM execution and solutions.

"That is very encouraging, and an endorsement to Chinese private companies, especially those focused on AI, quantum, semis, microelectronics. Investors are seeing this as a positive development, prompting some to come back.

"This time it feels different, and while there are questions about how quickly the market has run, it feels a lot more constructive."

Chinese companies helped push the value of initial public offering activity in Hong Kong to US$1.47 billion in the first quarter, versus US$612.7 million a year earlier, LSEG data showed.

As the year draws on, most major listings in Hong Kong are likely to be secondary listings of mainland Chinese firms turning to the financial hub to raise capital, bankers said.

Shenzhen-listed battery maker CATL has filed for a Hong Kong listing which Reuters reported will raise at least US$5 billion.

"With the strong support from both the mainland Chinese and Hong Kong regulators, the encouragement for more high end A share companies to list in Hong Kong and the uncertainties surrounding the US and European countries, the recent surge of trading activities in the Hong Kong securities market is sustainable," said MinterEllison consultant Victoria Lloyd.

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