Hong Kong’s options market has kicked off the Year of the Snake with a bang, fueled by surging investor interest in technology and electric vehicle (EV) stocks. Since trading resumed after the Lunar New Year, the market has seen an explosion in activity, with nearly 1.2 million puts and calls traded daily on average, marking the highest level since October, according to data from the Hong Kong Exchanges and Clearing (HKEX).

DeepSeek’s AI Breakthrough Sparks Market Euphoria

The dramatic upswing comes amid rising optimism over China’s technology sector, fueled by DeepSeek’s artificial intelligence advancements. The AI innovator has set off a wave of excitement, with major firms—including BYD and digital health providers—announcing plans to integrate its technology. Investors are rushing to gain exposure to the anticipated AI boom, sending the Hang Seng Tech Index soaring to its highest level since 2022, surpassing the October rally that was triggered by China’s aggressive stimulus measures.

“We’ve seen such a sudden reversal of sentiment post-DeepSeek,” said Vikas Pershad, portfolio manager at M&G Investments Singapore. “People are coming back to Chinese equities. It’s long overdue, and using options is an inexpensive way to get exposure quickly.”

Options Frenzy Hits New Highs

The surge in sentiment has translated into record-breaking options activity. Thursday’s session saw nearly 1.9 million contracts traded on HKEX, marking the highest volume of the year. Options tied to futures tracking the Hang Seng Tech Index hit a new peak, while trading volumes on BYD Electronic International soared to an all-time high as bets on Chinese EV makers skyrocketed.

So far in February, Hong Kong’s options trading volume has already jumped 38% compared to January. The resurgence follows a sluggish end to 2024 but signals a major comeback for derivatives trading in the city, which hit record highs last year.

China’s Tech Renaissance: A Wake-Up Call for Investors

For many fund managers, DeepSeek’s AI breakthrough has served as a wake-up call for global investors who had previously been skeptical about China’s tech sector.

“DeepSeek was like a bell that woke up investors to Chinese tech,” said Jian Shi Cortesi, portfolio manager at Gam Investment Management in Zurich. “Previously, investors thought AI plays were limited to US giants, semiconductor firms, and hardware powerhouses. Now, the view is shifting—China is actually quite advanced in AI, EVs, drones, robotics, solar, and battery technology.”

Derivatives Boom: The New Gateway to China’s Market

Hong Kong’s derivatives market has been on an upward trajectory, with 2024 marking a record year for trading volumes. The surge was initially driven by China’s “stimulus bazooka,” which helped transform previously beaten-down stocks from Hong Kong and the mainland into some of the world’s best-performing assets. Now, the combination of AI optimism and geopolitical uncertainties—particularly surrounding a potential second term for US President Donald Trump—has fueled fresh volatility in Chinese markets.

HKEX has capitalized on this momentum by launching weekly contracts on the Hang Seng Tech Index and select single stocks, providing traders with new instruments to bet on market swings.

Volatility Returns to Hong Kong’s Markets

The renewed frenzy in tech and EV stocks has also reignited volatility in Hong Kong’s markets. The HSI Volatility Index has surged nearly 5 points in February, setting it on track for its biggest monthly jump since September.

With tech sentiment reversing and AI enthusiasm gripping the market, Hong Kong’s options boom shows no signs of slowing down. Investors, once hesitant about Chinese equities, are now racing to secure a front-row seat in what could be the next big wave of technological innovation.

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