Asian shares surged to a three-month peak on Friday as buyers returned to previously overlooked Chinese stocks, fueled by optimism over artificial intelligence. Meanwhile, the narrative of U.S. exceptionalism continued to lose its appeal.
Gold remained near a record high and was poised to extend its gains for an eighth consecutive week. Safe-haven flows helped the precious metal due to concerns over Donald Trump’s tariff threats and contentious negotiations as the U.S. president seeks a quick resolution to the Russia-Ukraine conflict.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) jumped more than 1% to reach its highest level since November 8, putting the index on track for a sixth straight week of gains. This marks the longest winning streak in over two years.
The increase stemmed from a surge in Hong Kong- and China-listed stocks, with the Hang Seng Index (.HSI) climbing to a three-year peak and the CSI300 index (.CSI300) rising 1%.
Hong Kong’s tech shares (.HSTECH) advanced 4.7%, while the Shanghai Composite Index (.SSEC) rose 0.7%. Chinese stocks have seen significant gains recently, driven by DeepSeek’s AI breakthrough, which reignited investor interest in China’s technology sector.
The Hang Seng Tech Index has gained nearly 30% this year, in stark contrast to the S&P 500 (.SPX), which is up just 4% during the same period.
“DeepSeek has been a catalyst for sentiment changing,” said Brian Arcese, portfolio manager at Foord Asset Management.
Earlier this week, Chinese President Xi Jinping held a rare meeting with major figures in China’s technology sector, urging them to “show their talent” and have confidence in the power of China’s model and market.
U.S. stocks experienced a sell-off on Thursday, with the Dow dropping 1%. The S&P 500 and Nasdaq both shed just under half a percent. “I think that is a shift in China. These things are done for a reason, nothing’s really coming out of the meeting other than the fact that we’re showing that we’ve met… but that is a big signal, you don’t do that lightly,” said Arcese.
In contrast, markets in Europe and the U.S. appeared set to open on a downbeat note. EUROSTOXX 50 futures fell 0.11%, and FTSE futures eased 0.08%.
Nasdaq futures lost 0.07%, while S&P 500 futures shed 0.09%.
DeepSeek’s breakthrough has not only shifted investor focus back to China but also prompted a reassessment of crowded positions in mega-cap U.S. technology stocks, which are currently trading at much higher valuations than their Chinese counterparts.
U.S. sentiment soured further after Thursday’s downbeat forecast from Walmart (WMT.N), the world’s largest retailer, raised concerns about the outlook for the world’s largest economy.
“The footing that the U.S. economy was thought to be on is starting to show a few little cracks, in terms of the exceptionalism of the AI and technology aspect… you’re seeing some cracks in the growth narrative that the U.S. economy is just so much better than the rest of the world,” said Tony Sycamore, a market analyst at IG.
Elsewhere, Japan’s Nikkei (.N225) edged up 0.17%.
DOLLAR WEAKENS
The threat of further import duties from Trump continued to cast a shadow over markets. Traders also began to recognize that Trump’s second term has largely been characterized by bluster regarding tariffs.
The dollar was on track for a third consecutive weekly loss, as traders who had built up large long positions in anticipation of a trade war stepped back while Trump wavered on tariffs.
Several Federal Reserve officials noted on Thursday that they are monitoring what they perceive as rising inflation risks and the uncertain impact of Trump’s trade, immigration, and other policies.
The weaker dollar pushed sterling to a two-month high of $1.2674, while the euro steadied at $1.0493 ahead of a weekend election in Germany.
The yen fell 0.5% to 150.35 per dollar as comments from Bank of Japan Governor Kazuo Ueda eased concerns about a more aggressive rate hike stance.
Data released on Friday showed Japan’s core consumer inflation hit 3.2% in January, marking its fastest pace in 19 months.
“The data supports the growing market conviction of a BOJ rate hike by July, and a possible third hike by year-end,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
In commodities, oil prices dipped but were still on track for a weekly gain. Brent crude oil futures eased 0.21% to $76.32 a barrel but were set to rise more than 2% for the week. U.S. West Texas Intermediate crude fell 0.22% to $72.32, also on track for a weekly gain of over 2%.
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