On [specific date], Deutsche Bank released a research report on Chinese assets, which caused a stir among investors. Let's take a look at this report.

The will to contain China is crumbling.

The reason why this Deutsche Bank report has garnered widespread attention is primarily due to its strikingly provocative titles when roughly translated, such as "China Gobbles Up the World," "China Devours the World," "China Eats Through the World," and "China Will Dominate the World." The author of the report is Peter Milliken, a financial analyst based in Hong Kong, whose main research areas are the Chinese economy and stock market.

The titles of the Deutsche Bank report include: "China is Eating the World!" and "This is China's 'Sputnik Moment', Not Artificial Intelligence's!". Translated directly, these are: "China is Eating the World!" and "This is China's 'Sputnik Moment', Not Artificial Intelligence's!". Such striking titles are actually Peter Milliken's adaptation of Marc Andreessen's famous phrase "Software is eating the world," replacing "software" with "China."

The "Sputnik Moment" originates from the successful launch of the world's first artificial satellite, "Sputnik," by the Soviet Union, which made the United States realize it had been surpassed by the Soviet Union in the space race. The Deutsche Bank report emphasizes "not just artificial intelligence" because the emergence of China's artificial intelligence (AI) has led many in the West to believe that China has already overtaken in the field of AI. Deutsche Bank analysts point out that what China has surpassed is not just AI, but that the entire country has entered its own "Sputnik Moment."

The Deutsche Bank report is addressed to investors worldwide, with its core viewpoint emphasizing that the value of Chinese assets is severely underestimated, currently presenting a discounted price, and this discount is bound to disappear. When will it disappear? The Deutsche Bank report believes: this year. The Chinese stock market may usher in a big bull market this year. Proving the value of Chinese assets is the starting point of the Deutsche Bank report. Deutsche Bank analysts have been optimistic about Chinese assets for some time, but they are "troubled by finding factors that can awaken the world and prompt them to buy." In other words, analysts have always been unsure how to convince global investors to wake up, that Chinese assets are the most undervalued and the most worthy of investment... Now, Deutsche Bank analysts have found the reason and the timing.

The emergence of artificial intelligence in China has caused a strong shock in the West. Many in the West believe that China's artificial intelligence has reached a "Sputnik moment," and analysts at Deutsche Bank have finally seized the opportunity to declare that China is not just surpassing in AI, but urging everyone to take a good look at China! From the tone of Deutsche Bank's report, it is not hard to see that the sudden rise has caused some in the West, who have been trying to curb China's rise, to lose their will, while also giving those who support China a reason to cheer for it. It is truly no exaggeration to call it a "national fortune level" event.

Several Reasons for China's Bull Market

So, what are the specific reasons cited in the Deutsche Bank report for predicting a bull market in Chinese stocks this year? Let's list some of them.

The underestimated fact

To illustrate the value of Chinese assets, the Deutsche Bank report first emphasizes the facts—facts that have always been there, but Western observers have consistently underestimated them without realizing it. What are these underestimated facts? Analysts point out that China's development process first achieved global dominance in clothing, textiles, and toys, followed by basic electronics, shipbuilding, white goods, and solar energy, and then "suddenly dominated" in telecommunications equipment, nuclear energy, defense, and high-speed rail. In recent years, China has been exporting "powerful and attractive" electric vehicles to the world as a leader, with "prices significantly lower than existing similar models." In another year, China launched the world's first sixth-generation fighter jet and a low-cost artificial intelligence system within a week. Currently, China has developmental advantages in intellectual property, high-value-added sectors, and supply chains. Correspondingly, there is a global underinvestment in China. Theoretically, investment preferences lean towards leading companies, meaning those with strong competitive moats. Now, the broader and deeper moats belong to China, not the West.

Compare China and Japan.

After presenting several facts, Deutsche Bank analysts proceeded to compare China with Japan. The analysts believe that China is quite similar to Japan, but it is a mistake to compare today's China with Japan in a certain year—today's China is more like Japan at an earlier stage. In that year, Japan's real estate bubble burst, followed by an economic collapse. China has also experienced a real estate bubble, but it is far less severe than Japan's. Notably, in the 20th century, Japan's actual growth rate was a certain percentage, hailed as an "economic miracle," while today's China is anxious about whether its economic growth rate will be a certain percentage or another, considering the speed "slow." History may look back and call today's Chinese economic growth a "miracle." The biggest difference between today's China and Japan in that year lies in the stock market. After the collapse of Japan's real estate bubble, the stock market bubble also burst, because Japan had previously relaxed financial regulations and promoted financial internationalization, which pushed up the Japanese stock market—"at that time, the market value of the Japanese stock market had increased several times over the past years." In contrast, China's stock market valuation is currently at a low level. Therefore, Deutsche Bank analysts believe that China is likely to follow a path similar to Japan's next, that is, to push up the price of Chinese assets through financial internationalization, thereby triggering a big bull market. This aligns with the direction promoted by the United States—the U.S. would consider financial internationalization beneficial to itself.

The impact of the "Belt and Road" initiative.

Deutsche Bank analysts believe that a major challenge facing the Chinese economy is population decline. However, two current advantages of China will offset this impact. One is China's global leadership in automation, where the widespread installation of industrial robots will strengthen productivity advantages and increase per capita wealth. The other is China's "Belt and Road" initiative, which opens the door to exports—Central Asia with tens of thousands, West Asia with hundreds of millions, South Asia with billions, Africa with billions, and Latin America with hundreds of millions... In a recent year, China's exports grew by a certain percentage, with exports to Brazil increasing by a certain percentage, to the UAE by a certain percentage, to Saudi Arabia by a certain percentage, and to ASEAN countries along the "Belt and Road" by a certain percentage... Deutsche Bank analysts believe that a problem with China's dominant exports is that they will encounter trade protectionist measures from many countries. However, no matter what methods are used to respond, the pace of Chinese enterprises continues to move forward.

The U.S.-China trade war may trigger favorable outcomes.

The Deutsche Bank report predicts the outcome of the US-China trade war as "potentially bringing an unexpected upside shock." The so-called "unexpected upside" refers to the current situation where the US is imposing new tariff pressures on China, but the scenario is likely to reverse. Analysts believe that Trump views China as a primary source of revenue. He is more of a "trader" than an "investor." A "trader" has stop-loss settings. As the belief in the West's containment of China is shaken, US trade policy is likely to revert. The Deutsche Bank report suggests that a trade agreement between the US and China may be reached in the first half of the year, with the US shifting its focus to issues in the Western Hemisphere. The agreement would involve limited tariffs, a retreat from current trade restrictions, and some large contracts between US and Chinese companies... If this happens, Chinese stocks are expected to rebound.

The leading position of technology and the disappearance of valuation discounts.

Deutsche Bank analysts believe that the key to investing in technology is to invest in leaders, as profits are concentrated in the hands of market leaders. Comparing the Shanghai-Shenzhen index with the Nasdaq reveals that both indices include global leaders in their respective fields. However, U.S. investors pay a multiple of the book price compared to China; many large Chinese companies are listed both in the U.S. and Hong Kong, but the stock prices in Hong Kong are only a fraction of those in the U.S... The analysts said, "As Chinese companies rise globally, this valuation discount should turn into a premium at some point. We believe that investors will have to turn to China in the medium term and will find it difficult to acquire their stocks without driving up prices."