(Bloomberg) — Chinese equities listed in Hong Kong outperformed their Asian peers as gains in tech heavyweights countered the negative impact of a new US tariff on China.

Most Read from Bloomberg

The Hang Seng China Enterprises Index (^HSCE) ended little changed after falling as much as 2.5%, with a rally in Alibaba Group Holding Ltd. (9988.HK, BABA) and Semiconductor Manufacturing International Corp. (0981.HK) providing support. The moves came on the heels of a resumption in trade in Hong Kong following the Lunar New Year holiday, while markets on the mainland remain shut.

Chinese startup DeepSeek’s low-cost AI model has highlighted Beijing’s strength in the industry and spurred wagers that the advancements will help the nation close the gap with the US. Investors are also looking to an annual legislative meeting in March for further stimulus to revive a market that has lost around half the gains fueled by a policy blitz unveiled in September.

“China tech stocks benefit sentiment-wise from what we learned about DeepSeek, in the sense it showed that China tech companies might not lag in AI too much,” said Xin-Yao Ng, an investment director at abrdn Plc in Singapore. “Besides DeepSeek, there’s actually been a series of model releases in China over recent weeks that all claims to match overseas tech, like Bytedance’s Doubao, Alibaba’s Qwen, another startup Moonshot.”

Alibaba’s shares jumped 6.5% in Hong Kong to the highest since Nov. 11, after the company said its new AI model scored better than Meta Platforms’ (META) Llama and DeepSeek’s V3 in various tests. The Hang Seng Tech Index reversed a drop to close 0.3% higher.

Valuations are also in China’s favor. The Hang Seng Tech Index is trading at around 16 times forward earnings, compared to Nasdaq 100’s 26 times as of Monday’s close.

“Chinese equities, and especially Chinese technology companies, are priced at a steep discount compared to their American counterparts,” said David Chao, global market strategist, Asia Pacific ex-Japan at Invesco.

Trump imposed tariffs of 25% on Canada and Mexico and 10% on China on Saturday, with the levies set to come into effect Tuesday. While Canada and Mexico have vowed to hit back, China’s Commerce Ministry said it would initiate “corresponding countermeasures” without elaborating, and pledged to file a complaint at the World Trade Organization.

Story Continues