1. Chinese Stocks Surge Amid U.S. Market Slump
Last Friday, the U.S. dollar index took a dive, dropping 0.64% after a sharp 1.22% fall earlier in the week. The U.S. stock market with all three major indexes declining: the Dow Jones fell 0.32%, the Nasdaq 0.5%, and the S&P 500 0.29%.
In contrast, Chinese stocks listed in the U.S. skyrocketed. The China Stock Index surged by 4.25% in one night, reclaiming all its moving averages. Over the past eight trading days, it has gained 11.8%, signaling a strong rebound in Chinese assets.
2. China’s AI Models Spark Market Panic
Over the weekend, the Chinese AI company Deep Seek, a subsidiary of the quant fund giant High-Flyer Quant (幻方量化), caused a stir in Silicon Valley. The release of its open-source AI model, R1, just a month after unveiling its V3 model, sent shockwaves through the U.S. AI and stock markets.
Independent tests in the U.S. suggest that R1 even surpasses OpenAI’s latest model, o1, raising concerns about China’s rapid progress in AI development.
According to global AI model rankings, Deep Seek’s R1 ranks alongside OpenAI’s o1 as the best in the style-control category, with R1 slightly outperforming in specific benchmarks. Meta’s Chief AI Scientist stated that R1’s debut marks a turning point, showcasing how Chinese companies are not only catching up but surpassing their U.S. counterparts. Open-source models, like R1, are now proving more efficient than proprietary models.
What’s even more striking is the cost efficiency of R1. Deep Seek revealed that training R1 cost only one-thirtieth of what OpenAI’s latest model required—an astounding 98% reduction in expenses. This raises critical questions about the future of high-cost AI infrastructure. For example, NVIDIA, the U.S. leader in AI computing, might face significant setbacks if lower-cost alternatives dominate the industry. Similarly, the U.S.’s $500 billion “Stargate Project” for building AI infrastructure could lose relevance.
The unveiling of R1 caused ripple effects worldwide. SoftBank, a key player in the Stargate Project, saw its stock plummet nearly 6%, its largest single-day drop since November 1. U.S. stocks also took a hit—NVIDIA’s share price fell over 5% in after-hours trading, and Broadcom’s dropped more than 4%. Futures for the Nasdaq index fell over 1.2%, and even Chinese A-shares related to AI dipped after initial gains.
The current shifts might highlight a challenge to US: China has discovered a breakthrough in the AI race, challenging the dominance of U.S. companies. While this may create turbulence in global markets, it’s a long-term positive for Chinese assets. As approach the Lunar New Year, market sentiment remains cautious, but analysts predict a post-holiday rally fueled by both domestic and international investments.