Chinese Stocks Surge Amid National Pride and Entertainment Success

The nationalistic forces that boosted ‘Ne Zha 2′ and DeepSeek have also lifted Chinese stocks. But are the gains sustainable after the excitement fades?

Lunar New Year Success Boosts Film and National Pride

The animated film “Ne Zha 2” experienced a significant victory during the Lunar New Year holiday, propelling China’s box office to unprecedented heights. Amidst China’s recent economic slowdown, this success has contributed positively to national pride.

This film has already grossed 14.1 billion yuan ($1.95 billion), surpassing “Captain America: Brave New World” and the 2021 blockbuster “Spider-Man: No Way Home,” making it the seventh highest-grossing movie worldwide. Ne Zha, a demon boy who emerged three years ago, has become a new symbol of Chinese pride, rivaling global icons like Spider-Man and Captain America.

The overwhelming support from Chinese audiences played a crucial role in the film’s remarkable success. By February 28, overseas ticket sales were only 150 million yuan, which accounted for about 1% of total earnings. The real drive came from domestic viewers who catapulted “Ne Zha” to its current standing.

Comments from Chinese netizens highlight a sense of pride in contributing to the “one-billion-yuan box office.” Some viewers reported watching “Ne Zha” up to ten times, while entrepreneurs spent significant amounts renting theaters for community viewings. When screenings began in Hong Kong and Macao, local dignitaries attended, showcasing the film’s cultural importance as a patriotic emblem.

Officials from Macao expressed admiration for the film, emphasizing the enclave’s role in fostering a culturally rich environment. The substantial promotion surrounding “Ne Zha” has turned it into a patriotic artifact, symbolizing the essence of Chinese culture.

Impact on Stock Market

The film’s success has also positively influenced related stocks. Shares of its producer, Beijing Enlight Media (300251.SZ), surged from 9.5 yuan at the start of the year to a record 34.73 yuan on February 14. This increase drove its price-to-earnings (P/E) ratio to a remarkable 140.6 times. Other animation and film-related stocks benefited from the heightened visibility as well.

Such phenomena of market influence are not new. The themes of patriotism and self-reliance resonate deeply with Chinese consumers, creating unexpected market dynamics.

National Sentiment Drives Market Trends

In 2021, sports brands like Nike and Adidas faced backlash from Chinese consumers for their decision not to use cotton sourced from Xinjiang, leading to a steep decline in their sales for seven consecutive quarters. This gap was filled by domestic brands like Li Ning (2331.HK) and Anta (2020.HK), both of which experienced soaring popularity at the expense of their Western counterparts. In fact, Li Ning’s stock reached a record high of HK$104 in September 2021, nearly doubling from HK$54 earlier that year, and it briefly surpassed Adidas in market capitalization in 2023.

However, the volatile nature of national sentiment can also have detrimental effects. Following controversy over its new designs in late 2022, Li Ning faced a hefty 70% stock decline in 2023, wiping out HK$200 billion ($25.7 billion) of market value, demonstrating the precarious balance between market euphoria and risk.

AI Breakthrough Spurs Market Re-Evaluation

Recently, both the Mainland Chinese and Hong Kong stock markets have been revitalized following the emergence of AI company DeepSeek, igniting a significant re-evaluation of Chinese tech stocks. E-commerce leader Alibaba’s stock has jumped 56% this year, while Xiaomi and JD.com have gained 52% and 21% respectively. This contrasts sharply with the S&P index in the U.S., which has risen just 1.4%, and Nvidia, a tech favorite, which is down nearly 10%. The stark outperformance of Chinese stocks amid ongoing U.S. tariffs has surprised many observers.

Despite these trends, China’s fundamental economic situation remains unchanged. January’s consumer price index (CPI) fell short of expectations, and the producer price index (PPI) has been negative for 28 consecutive months. The significance of the “DeepSeek moment” lies in its ability to bolster market confidence and reshape perceptions of China’s competitiveness in the AI sector, enticing investors to support Chinese AI stocks.

The current rally in Chinese stocks reflects a blend of technological advancement and a surge in national pride, showcasing the “magical Oriental force.” Yet, as seen with the case of Li Ning, this fervor can lead to quick downturns, highlighting the importance of caution. Companies such as TikTok and Huawei illustrate how strong national associations might lead to challenges when pursuing international expansion.

Navigating Emotional Market Dynamics

Investing in a volatile market infused with national sentiment poses challenges. Balancing rational decisions amidst market exuberance is a complex endeavor for investors navigating these dynamics.