Value Rotation, Baidu Releases ERNIE Bot Updates

Asia-Pacific Markets Show Mixed Performance

The Asia-Pacific region witnessed a mixed bag of performances in the equity markets overnight, with Korea and Japan emerging as outperformers while Hong Kong and Mainland China lagged behind. Hong Kong managed to hold its ground slightly better than Mainland China, despite both markets experiencing what appears to be another day of profit-taking. Sectors that performed well in Wednesday’s session were mostly lower yesterday, indicating a possible correction after recent gains. However, both markets saw a noticeable rotation into value stocks and sectors, signaling a shift in investor sentiment.

In Hong Kong, trading volumes remained robust, with turnover increasing by 30% compared to the previous day. This heightened activity was accompanied by Mainland investors selling a net $131 million worth of Hong Kong-listed stocks and ETFs via the Southbound Stock Connect program. Despite this, the Hong Kong market saw some resilience, with sectors like Consumer Discretionary, Consumer Staples, and Utilities posting modest gains. Meanwhile, the Information Technology, Real Estate, and Health Care sectors were among the worst performers, dragging the Hang Seng and Hang Seng Tech indexes down by 0.20% and 0.87%, respectively.

"Ne Zha 2" Breaks Box Office Records, Boosts Beijing Enlight Media

In a standout development, the animated film Ne Zha 2 shattered box office records in China, leading to a 20% surge in the stock price of its producer, Beijing Enlight Media, which is listed on the A-share market. The film’s unprecedented success has sparked speculation about the use of AI-powered animation techniques, which could revolutionize the animated film industry. This achievement not only highlights the growing influence of Chinese cinema but also underscores the potential of AI-driven innovation in creative industries.

Baidu’s ERNIE Bot Upgrade Marks a Positive Step

Baidu, often referred to as the "Google of China," saw its stock rise by 5% after announcing significant upgrades to its ERNIE bot, a large language model. The updates include a new tool called Deep Search, which expands the model’s capabilities by incorporating multimedia inputs and outputs. Baidu also revealed that the ERNIE bot will now be available to all users free of charge, a move that could broaden its adoption and usage. This development comes as a welcome positive for Baidu, especially after it was overshadowed by Apple’s decision to partner with Alibaba for AI tools on iPhones sold in China.

Real Estate and Elderly-Focused Trains in the Spotlight

The real estate sector came under pressure despite earlier gains, even as news emerged about the establishment of a new housing fund in Shenzhen. Meanwhile, China’s State Railway Group announced plans to introduce trains specifically designed for the elderly. These trains aim to enhance comfort and accessibility for seniors, with features like predefined touristic routes and onboard medical care facilities. By catering to this demographic, the initiative seeks to unlock the spending power of older consumers, offering a promising avenue for economic growth.

Southbound Stock Connect Flows Reflect Tech and Growth Focus

Southbound Stock Connect flows from Mainland China into Hong Kong have been heavily skewed toward growth and technology stocks this year. Information Technology and Communication Services sectors collectively accounted for 55% of these flows, driven by optimism around AI. This trend gained momentum after Alibaba’s Hong Kong-listed shares were added to the program in September 2022. Local Mainland investors have been the primary drivers of the rally in tech and growth stocks, with Southbound flows contributing nearly one-third of Hong Kong’s trading turnover on many days. However, foreign investors have been less active, with many still favoring U.S. equities. The unwinding of this trade could emerge as a key catalyst in the coming months.

Performance Data and Announcements

Shanghai’s main indices closed lower, with the STAR Board leading the decline at -2.31%. Consumer Staples and Utilities were among the few bright spots, while Information Technology and Real Estate lagged behind. Exchange rates remained stable, with the CNY per USD at 7.30 and CNY per EUR at 7.58. Yields on 10-Year Government Bonds and China Development Bank Bonds held steady at 1.63% and 1.62%, respectively. Commodity prices dipped slightly, with copper and steel prices falling by 0.23% and 0.61%, respectively.

For those interested in delving deeper, a live webinar titled A DeepSeek-Driven China Internet Re-Rating? is scheduled for Thursday, February 20th at 11 am EST. Additionally, the recently published article 2025 China Outlook: A Recipe For Re-Rating provides valuable insights into the region’s economic trajectory.