China AI Startups Surge in HK After Holiday | The China Show 2/20/2026

Key Concepts

• Geopolitical Risk: Escalating tensions in the Middle East (US-Iran) and their impact on oil prices and global markets.
• Market Divergence: Contrasting performance between US and Chinese equity markets, with expectations of China outperforming.
• Japan’s Resurgence: A cultural and economic boom in Japan driven by pop culture exports and corporate reforms.
• AI Competition: India’s ambition to become a major AI hub, focusing on inclusion and open-source development.
• Equity Market Rotation: A shift from growth stocks towards cyclical and defensive stocks.
• Shifting Trade Dynamics: Changes in US trade relationships, with increasing trade with Mexico, Vietnam, and Taiwan.

Geopolitical Tensions & Market Reactions (Part 1 & 2)

The initial focus was on escalating geopolitical tensions between the U.S. and Iran, stemming from President Trump’s 10-15 day ultimatum for Iran to negotiate a nuclear deal (TCPOA). This was accompanied by a significant U.S. military buildup in the region – two aircraft carriers, fighter jets, and refueling tankers – leading to a “risk premium” of approximately $5 per barrel being factored into oil prices (currently around $70). Analysts, referencing a Bloomberg Economics model, are monitoring the potential for Iran to disrupt the Strait of Hormuz, though China’s economic influence may deter such action. Historical precedents, like the taking out of Qassem Soleimani, illustrate the range of potential U.S. responses. The segment noted a potential mirroring of the oil price spike seen in June of last year if escalation occurs.

Global Equity Market Performance & Trends (Part 1 & 2)

Despite resilience, equity markets are becoming more selective. While interest in US equity markets remains at a record high and is expected to continue into 2025, a bearish view exists anticipating currency trade considerations. A “rotation trade” is underway, shifting investment into cyclical and defensive stocks, signaled by Walmart’s cautious earnings. Big Tech is experiencing a “heavy emotional discount” due to AI overspending and disruption, despite still contributing 30% to Q4 earnings. Large-cap US stocks are yielding 5-10% earnings, but smaller alpha opportunities are less apparent.

China’s Economic Outlook (Part 1 & 2)

Chinese markets are expected to outperform in the coming year, driven by policy choices to be revealed at the People’s Congress. Currently, Chinese markets represent approximately 5% of gross flows, shifting towards high-growth stocks. However, skepticism remains regarding China’s ability to consistently support property prices despite repeated policy attempts. Housing sales, construction, and starts are down 60-80% from their peak. The Golden Dragon Index has been down for six straight sessions, indicating underperformance compared to other Asian markets, attributed to a lack of “hot sectors” and investor confidence. The US trade deficit with China is shrinking, while deficits with Mexico and Vietnam have reached record levels. Taiwan has surpassed China as a source of US imports, driven by semiconductor exports.

Japan’s Economic & Cultural Boom (Part 2)

Japan is experiencing a significant economic and cultural boom. Its pop culture (Hello Kitty, Demon Slayer, anime) has become its second most valuable export, surpassing even semiconductors, fueled by a weak Yen and increased tourism. Companies like Sanrio and Konami are expanding into hotels, restaurants, and retail, capitalizing on their intellectual property (IP). This cultural boom is directly linked to a surge in Japanese equities, with Sanrio shares hitting all-time highs. The “Buy Japan” trend extends beyond content to sectors like shipbuilding and quantum computing, driven by corporate governance reforms, a weak Yen, and political stability. Foreign investors purchased $11.5 billion in Japanese stocks in the week ending February 13th.

India’s AI Ambitions (Part 1 & 2)

India is striving to become a key AI hub, with Reliance investing over $100 billion in AI over the next few years and ASML in talks with the Indian government. India’s strategy emphasizes “inclusion” – developing AI that caters to its diverse languages and market needs – and investing in infrastructure like data centers and undersea cables. There is debate on whether government pronouncements on AI are genuine or “lip service,” given the dominance of US and Chinese tech giants. The importance of open-source AI development was highlighted as a means of achieving greater autonomy. OpenAI expressed confidence in its future chip supply, despite industry-wide shortages, and is working with strategic partners and exploring chip design.

Other Notable Developments (Part 1 & 2)

• Hong Kong Market: Hong Kong markets reopened after the Lunar New Year break with a generally weak performance, particularly in the tech sector (Hang Seng Tech down 0.7%). MINIMAX Group showed strong gains due to analyst upgrades.
• Private Credit Risks: The restriction of withdrawals from a Blue Owl Capital private credit fund serves as a case study of the risks associated with illiquid private credit investments, particularly for retail investors.
• UFO Disclosure: President Trump announced plans to declassify and release government documents related to UFOs/UAP.
• Netflix Acquisition: Netflix is considering acquiring Warner Bros. Discovery, leveraging its consumer model to maximize the return on IP.

Conclusion

The segments highlighted a complex interplay of geopolitical risks, shifting market dynamics, and emerging economic trends. While global markets face uncertainty due to tensions in the Middle East, opportunities exist in China and Japan. India’s ambitious AI strategy and Japan’s cultural resurgence present compelling investment narratives. The overall message emphasizes the need for selective investment, careful risk assessment, and a nuanced understanding of the evolving global landscape.