Written by: 0xjs@Golden Finance

Deepseek, the technological breakthrough of "national fortune level" will continue to ferment, and the entire asset may need to be revaluated.

On February 5, 2025, Deutsche Bank published a research report "China eats the World", which flooded the investors. Deutsche Bank said 2025 is a year ahead of others, and 2025 launched the world's first sixth-generation fighter and low-cost artificial intelligence system "DeepSeek" within a week. Marc Andreessens calls the launch of “DeepSeek” the “Sputnik Moment” of AI, but it’s more like the “Sputnik Moment”, marking the recognition of intellectual property rights. The field that excelled in high value added areas and dominated supply chains is expanding at an unprecedented rate. With companies that have a leading position in almost every industry, valuation discounts should turn into premiums at some point in the future as companies expand in global markets. Investors must turn to investing in stocks significantly in the medium term, and Hong Kong/stocks will usher in a big bull market in the medium term.

It is worth noting that the title of its research report borrows the famous quote from a16z founder Marc Andreessens: "Software is eating the world", the first part of the research report "This is, not AI," Spur TNIC Moment'" also borrowed Marc Andreessens' recent comment on DeepSeek: "DeepSeek is AI's Sputnik moment".

The following is the full text of Deutsche Bank's research report:

Original title: China eats the World

Author: Peter Milliken, CFA, research analyst

This is , not AI, "Sputnik Moment"

We believe 2025 is the year when the investment community realizes that it is surpassing the rest of the world. Nowadays, it is increasingly difficult for people to ignore the fact that companies are providing higher cost-effectiveness and often better quality in multiple manufacturing fields, even in the increasing number of service fields.

Investors pay the price to take dominance, and we expect the "discount" to disappear. Furthermore, due to the tendency to consume rather than production, and possibly due to financial liberalization, we believe that profitability is expected to exceed expectations throughout the cycle. We believe that the bull market in Hong Kong/stock began in 2024 and will surpass previous highs in the medium term.

First make its mark in the global corporate dominance of clothing, textiles and toys. Subsequently, it dominated the fields of basic electronics, steel, shipbuilding, and more recently in white appliances, solar energy, and other less eye-catching fields.

It still dominates the complex industries of telecommunications equipment, nuclear power, defense and high-speed railways without warning. These technological achievements have not been valued by investors before.

But by the end of 2024, it has attracted attention for its rapid rise to become a global leader in automobile exports, with a large number of electric vehicles with advanced functions, attractive prices and lower prices than existing models pouring into the global market.

In 2025, the world's first sixth-generation fighter and low-cost artificial intelligence system "DeepSeek" were launched within a week.

Marc Andreessens calls the launch of “DeepSeek” the “Sputnik Moment” of AI, but it is more like the “Sputnik Moment”, marking the recognition of intellectual property rights. The field that excelled in high value added areas and dominated supply chains is expanding at an unprecedented rate.

We believe that global investors tend to have a substantial under-allocation of assets, just as they avoided fossil fuels a few years ago until the market punishes investors who take non-market-oriented decisions. We see that the fund has very little exposure to risk today. Investors who prefer leading companies that have moats cannot ignore this: it is the companies that have broad and deep moats today, not the Western companies they consider economically superior.

's manufacturing industry is obvious, with its commodity exports twice that of the United States. It contributes 30% of the world's manufacturing value added, and its share in the service industry is also increasing rapidly. People are avoiding concerns about weak economics as investment destinations, but despite the cyclical slowdown in the economy, it is still growing more than twice as fast as most developed markets.

With companies that have leading positions in almost every industry, their share of global market value is unlikely to remain in single digits for a long time. We believe that people are gradually realizing that today is like Japan in the early 1980s, when Japanese companies were climbing the value chain, with higher product quality and continuous emergence of innovation. Many Western companies and industries may face potential survival crises, so their portfolios need to be readjusted to reflect this.

In order to survive, Western companies will need to: 1) large-scale automation; and/or 2) set up trade barriers. In the past, the second road was a downhill for economies, and while this is happening, it doesn’t necessarily help the West. For example, in the automotive sector, the main export market is often about 7 billion people outside the G10.

Figure 1: Global Trade in Manufacturing Figure 2: Export Share

Observation of the main international trade Category, which holds a share in all categories except clothing (which dominated the field before expanding its business overseas). In key commodity categories, the scale is larger than that of the United States and is usually many times larger. The only exception is the car (hereIt's about value rather than quantity), but it's likely to be ahead as well - Ford's CEO drives Xiaomi cars, it's hard to see that this trend will change. Even in the service industry, it is catching up, for example, in terms of transportation services, the share has increased by about 0.5 percentage points per year.

Figure 3: Main categories Export market share

Proxy indicators using patents as intellectual property rights

Have a complete Value chains and locally form professional clusters, have multiple Silicon Valley-like professional fields in key industries, and work closely with universities in research.

In the electric vehicle field, it has about 70% of patents, and 5G and 6G telecommunications equipment fields are in a similar position.

In 2023, nearly half of the world's patent applications account for. As there are more science and engineering graduates than the rest of the world combined, this trend is likely to continue. In addition, consider that many other graduates are human. Therefore, unless special circumstances occur, the rise in business dominance is unlikely to be blocked in the short term.

It is true that trade barriers are faced, and the U.S. and the EU impose tariffs on electric vehicles are a clear example, but the West is restricted when taking action because they need to consider the more serious consequences that may come with (such as inflation) , decreased competitiveness and retaliation). In the 1980s, the United States tried to curb Japan's development and achieved some results, but we believe that the situation today is not Japan in 1989, but more like Japan in previous years.

Figure 4: Number of patent applications in 2023

vs. Japan in the 1980s

All 20 In the 1970s, Japan's GDP (GNP) ranked second in the world, second only to the United States. After checking Wikipedia, we were surprised to find that Japan's actual GDP growth rate in the 1980s was only 4%, but this is still regarded as an important part of its economic "miracle". By contrast, people are anxious about whether the growth rate is 4% or 5% now and think that growth is “slow”, but in hindsight, this view may evolve into seeing it as a “miracle” .

The Plaza Accord requires the yen to appreciate by 40%, slowing Japan's industrial leadership. This led to an economic slowdown, and Japan responded with a loose currency. From 1987 to 1989, economic growth recovered to 5%, and during this period the stock market rose strongly and a bubble appeared. The rebound in economic growth has driven the recovery of the steel and construction industries, raising wages and increasing employment. In the late 1980s, demand rather than exports became the driving force for economic growth. This can also happen.

Japan in the 1980s

According to Wikipedia's explanation,Japan's economic growth is achieved through the investment of large amounts of cheap labor, the intensive use of capital and the improvement of productivity. Investment accounts for more than 30% of GDP, and financial suppression keeps interest rates at a low level, which has helped promote investment. Japan acquires new technology through joint ventures. In the early 1970s, Japan's savings rate reached 40% of GDP and dropped to nearly 30% by the early 1980s. In the 1970s, Japan began to set up factories overseas to avoid trade frictions. And it wasn't until recently that similar measures began.

The question is: What stage is it in this development path? Like Japan, it has also experienced the real estate bubble, but the degree is far less than that of Japan. In addition, it has been six years since the tightening of self-confidence credit and the real estate industry began to decline. House prices have fallen by one-third, mortgage rates have dropped by half, and nominal GDP has grown by about one-third, so affordability for home purchases has returned to levels not seen in years. Stock market valuations are also at low levels due to lower profit margins and lower P/E multiples. So, this is not Japan, which was in a bubble in 1989 (at that time, the market value of Japanese stocks increased 50 times in the past 20 years).

It is generally believed that we will not take the economic development path dominated by consumption in Japan, but will only fall into an economic downturn like Japan. But in fact, I am walking a path that the United States, Japan, Singapore, Hong Kong, Taiwan, South Korea, Spain and many and regions in Eastern Europe have taken. Others and regions struggle in the middle-income trap, but unlike them, they have become leaders in global manufacturing and increasingly service industries.

Figure 5: Standard process towards developed economies

Japan achieved freedom of the financial system around this time In Chapter 12 of the 2013 International Monetary Fund report, "Economic Transformation", mentioned that Japan in the 1980s has similarities with its future development path. Before the Plaza Accord, Japan's financial system was highly regulated, interest rates were regulated, and capital controls were strict. Due to the abundant capital of enterprises, the demand for bank credit was limited. Japanese investors hold a large amount of US assets, coupled with the depreciation of the yen, prompted the outside world to call on Japan to open up its financial markets and increase the attractiveness of yen-denominated assets. This in turn led to capital flows into Japan and increased money supply, which drove economic growth and asset bubbles.

It may be moving in a similar direction. President Trump may follow President Reagan's approach to promoting financial liberalization in the trade deal, and may also be ready to accelerate the process of internationalization of the RMB. We believe this is good news for the stock market, as the RMB may depreciate, which will enhance the profitability of the company and the attractiveness of its assets from a foreign exchange perspective. Why does the United States push this? The reasons may include: 1) considerations for reaching an agreement; 2) believe that the depreciation of the RMB can offset tariffs3) It is believed that financial liberalization will make the RMB appreciate, thereby weakening its competitiveness.

Whatever external pressures, if consumption is to be promoted, the liberalization of the financial system will help, ending the transfer of wealth from depositors to enterprises by normalizing interest rates. This will reduce excessive investment and vicious competition, as capital will be allocated reasonably, which will help improve corporate profitability and alleviate fiscal pressures, as the returns of state-owned enterprises will increase. We expect large enterprises, investment companies and households to increasingly pressure them to ease vicious competition to enhance stock market value. Just like before slowing down overinvestment in infrastructure and real estate, curbing overinvestment in industry will obviously be the next step, and may come faster than expected. We expect this to be a key topic in 2025, which will both appease the United States and the situation requires, and we expect this to drive a big bull market.

But what are the effects of population decline?

The decline in population poses a drag on economic growth, but many face this problem. We believe this completely ignores an important fact that there are two advantages: 1) automation leads, with about 70% of the world's industrial robots installed, which brings productivity advantages, thereby increasing per capita wealth; 2) has a huge potential market , The Belt and Road Initiative has brought Central Asia, West Asia, the Middle East and North Africa into its development track and expanded its market potential.

Although Central Asia has only a population of 80 million, it is rich in resources; West Asia has a population of 310 million, which is generally relatively wealthy. South Asia has 2.1 billion people (although two-thirds of them are in India, which is currently largely restricting trade and investment, but this may change in the medium term). There is also Africa, with a population of 1.4 billion. In other words, the potential consumer population in Africa is comparable, and the potential consumer population in Central Asia, West Asia and South Asia (excluding India) is comparable to that in ASEAN and Latin America. If China-India relations improve, the potential consumer population in India will also be Become a huge market. Therefore, focusing solely on population situations may lead to misconclusions about the future.

In 2024, exports increased by 7%, exports to Brazil, the UAE and Saudi Arabia increased by 23%, 19% and 18% respectively, and exports to ASEAN along the Belt and Road Initiative increased by 13%. . At present, exports to ASEAN and BRICS+ are equivalent to exports to the United States and the European Union. In the past five years, the export market share to these destinations has increased by two percentage points per year. Even in Latin America, the market is expanding rapidly. Therefore, although the United States imposes high tariffs, Deutsche Bank's economic team believes that if the United States imposes 10% tariffs in the first and second half of the year, given that US exports account for 3% of GDP, this will give GDP It brings downward pressure of 0.5%, which is a controllable impact.

The disadvantage of export dominance is that many major countries in the world have adopted protectionist measures even within the BRICS, so export growth is restricted to a certain extent. However, due to its advantages in intellectual property rights and added value in manufacturing, companies are likely to expand their influence in the international market by setting up factories in other markets or assembling parts in export. The weaponization of the US dollar makes investing in overseas infrastructure and factories more attractive than investing in US Treasury bonds, so the future development direction is quite clear.

Figure 6: Expanding the new economy market (unit: millions)

The Sino-US trade issue may usher in unexpected benefits

Generally expected markets The U.S. tariff levels are higher than Deutsche Bank’s expectations (we expect 20% tariffs to be implemented in two steps in 2025, one of which has been announced). But the reality may be much more optimistic than this pessimistic expectation.

Trump is obviously keen on tariffs as a source of fiscal revenue and, for economic and strategic reasons, will be regarded as the main source of tariff revenue. However, President Trump seems to place more emphasis on tactical victory, perhaps more than ideological stances that are difficult to gain support. In our industry, there are investors and traders. In recent years, traders' influence has grown increasingly. Perhaps President Trump is more like a "trader" than an "investor" who sticks to his ideology. If so, he is expected to strictly set the stop loss point.

The emergence of "DeepSeek" breaks the West's fantasy that it can be curbed. The United States is best to stimulate business development by reducing regulation, providing cheap energy, and reducing import barriers to intermediate products that cannot be produced in competition. The last point may take longer to come true, but we expect internal demands from the U.S. House of Representatives, Senate members, and business leaders to push the U.S. to return to the traditional Republican stance on trade issues. This may require some recurring negotiations, but this analyst expects a more trade-oriented stance to eventually become part of the “America First” agenda before the midterm elections.

We believe that a "trader" will seek to lock in results as soon as possible, so it may reach a Sino-US trade agreement in the first half of 2025 and then turn its focus to Western hemisphere affairs. A fast-resolved agreement could include limited tariffs (as expected by Deutsche Bank), lifting some existing restrictions, and some large contracts between Chinese and American companies. If this happens (which this analyst thinks will), the stock market is expected to rise.

Trade and market conditions are not closely related

In history, trade and economic strength have always complemented each other. Therefore, we were surprised to find that few studies link exports to stock market performance. However, exports are closely related to the growth of global money supply, which has been rising but are currently slowing down. When we promote Deutsche Bank's artificial intelligenceWhen the platform looks for related research, it tells us: “Some studies show that export growth can increase corporate earnings, thereby increasing stock valuations… (but) some studies also show that simply focusing on export growth can sometimes come at the expense of demand, This could hinder overall economic growth and thus negatively impact the stock market. ”

So paradoxically, the decline in exports could instead drive stock markets up for a period of time. The rise in various industries is accompanied by excessive investment in many areas. In the solar sector, efforts are currently being made to cut supply, and if other industries follow suit, this may be good news for the stock market and may also release some funds for consumption.

The growth rate of household deposits has slowed to twice the growth rate of nominal GDP, but household savings have increased by $10 trillion since 2020, and we expect that these savings will be used in large quantities in the medium term. and invest in the stock market. Therefore, Hong Kong/stocks have a lot of room for growth in terms of accelerated earnings growth and price-to-earnings ratio revaluation.

Figure 7: Family Bank Deposits Figure 8: Comparison of US and EU M2 with Export Growth

Estimate for Market Leaders Value

Figure 9: Median price-to-book ratio vs. ROE Figure 10: Nasdaq price-to-book ratio vs. ROE Rate comparison Figure 11: Comparison of CSI 300 price-to-book ratio and return on equity

The problem with investing in the technology industry is that profits are often concentrated in the hands of market leaders, so companies will engage in fierce competition for this position. compete. Investors are fully aware of this problem, but leading tech stocks like Amazon have faced the same situation. If we compare the CSI 300 index with the Nasdaq index, both of these indexes include global leaders in their respective fields. We found that the return on equity (ROE) of US companies is twice that of enterprises, but investors pay four times the price-to-book ratio (P/B) for US companies (8.2 times versus 2.0 times). Most large-cap stocks are also listed in Hong Kong, where their stock prices are usually around 40% cheaper, close to 1 times the price-to-book ratio. If you look at the MSCI index, it has a price-to-earnings discount of 10 percentage points compared to the world index, and is also close to the lower limit of its valuation range.

As companies expand in global markets, this valuation discount seems to turn into a premium at some point in the future. We believe that investors must turn significantly to stocks in the medium term, and that they may be difficult to obtain if they do not push up the stock price. We have always been optimistic about the stock market, but we have been troubled by the fact that we cannot find the factors that awaken the world and buy stocks, and what we think is the "Sputnik Moment" (or events such as the dominance of the electric vehicle field) is this factor . We expect Hong Kong/stock marketWill continue to maintain a leading position in the medium term, just like in 2024.

Figure 12: Comparison of the expected price-earnings ratio of the MSCI index and the MSCI world index

Figure 13: Asia-Pacific Portfolio Model