Who could have thought that the trigger to the US stock market correction came from an unknown home-grown quant/startup called DeepSeek in a heavenly city named Hangzhou.
Even though US media today is blaming uncertainty from Trump 2.0 actions in the past 7 weeks, the fundamentals had been there for years. Up till DeepSeek-R1 release, common belief and narratives in the US financial markets were that, with US dominance in AI, everything would be just fine, including historically high valuation of S&P 500. It was really deja vu all over again looking back 25 years during the first internet bubble between 1999 and 2001. Just like the movie Margin Call portrayed, the Wall Street just cannot control themselves or alter their behavior; it just repeats over and over again.
As I said after the DeepSeek-R1 release, it essentially helps reset the financial valuation models on China stock markets. What I did not elaborate was that, at the same time, it also helps reset the valuation models on the US stock markets.
So we are now seeing some divergence between CSI 300 and S&P 500. I am always confident that Shanghai Composite will get back to 4000~5000 in 2 years. But the current trajectory may expedite this re-valuation process because this phenomenon is going global rather than just Chinese domestic economic development.
Just recall a few months ago Biden was yelling in his state-of-the-union address that Xi was in a bind and Chinese economy was in a shitty place. That was less than a year ago ...... When will US politicians learn some real historical lessons on China? Sigh ......
