In a dramatic reversal from last year’s government crackdown on computer-driven trading, Chinese mom-and-pop investors are now embracing artificial intelligence tools like DeepSeek to navigate the stock market. The growing interest in AI-driven trading strategies, once seen with skepticism, has reshaped perceptions of China’s $700 billion hedge fund industry.
The surge in popularity of AI platforms, particularly DeepSeek—which is backed by a quant fund—has not only influenced market trends but is also changing how retail investors approach trading. Online crash courses and training programs have become common, with many retail traders eager to adopt computer models to beat the market. Brokerages and wealth managers are also adjusting to this shift, even as new risks arise in a market dominated by small traders’ cash flow.
“The future is the digital age, and AI will be vital,” Hong Yangjun told a room of eager investors in February, as they gathered to learn AI-assisted trading techniques. He drew parallels between modern warfare and the stock market, suggesting that, just as drones and robots will shape future conflicts, computers will dominate stock market battles.
This sentiment marks a striking contrast to the previous year, when computer-driven quantitative funds were vilified by retail investors, who labeled them “bloodsuckers.” Regulators even blamed these funds for market instability and unfairness, prompting a crackdown on the industry when it was valued at around $260 billion.
However, by February 2025, sentiment had changed dramatically. Investors paid 15,800 yuan ($2,179.91) each for a weekend course led by Mao Yuchun, founder of Alpha Squared Capital, who taught attendees how to trade stocks with AI. The course’s promotion highlighted Alpha Squared’s connection to High-Flyer, a hedge fund based in Hangzhou and the driving force behind DeepSeek. This shift in retail interest came after DeepSeek’s cost-effective large language model impressed Silicon Valley and sparked a rally in Chinese stocks.
Meanwhile, Chinese social media platforms are brimming with resources to help traders use DeepSeek for evaluating companies, picking stocks, and developing trading algorithms. Wen Hao, a trader from Hangzhou, praised the use of AI tools for streamlining the stock-picking process, noting that DeepSeek also helps him write code to time buy and sell decisions more effectively.
Large U.S. investment firms like BlackRock, Renaissance Technologies, and Two Sigma have been using AI in their investment strategies for some time, and analysts suggest that smaller asset managers and even retail investors in China are now poised to benefit from DeepSeek’s open-source model. Despite restrictions on services like ChatGPT in China, the country’s retail investors have increasingly turned to DeepSeek as an AI alternative.
The embrace of AI has also coincided with a strong start for Chinese stocks in 2025, with the MSCI China index seeing its best beginning to the year in history, according to Goldman Sachs. Brokers are quickly adapting, with many racing to integrate AI-driven models into their platforms.
“In the future, Chinese investors will completely change the way they make investment decisions and place orders,” said Zhou Lefeng, president of Xiangcai Securities. “Previously, clients would seek advice from wealth managers; now, they turn to DeepSeek.”
Larry Cao, a principal analyst at FinAI Research, explained that DeepSeek’s popularity is partly due to its cost-efficiency and strong reasoning capabilities. Unlike ChatGPT, which is unavailable in China, DeepSeek is actively promoted by the government. However, Cao expressed concerns about the level of trust investors place in the AI model. “People are trusting AI models more than financial advisers, but that may be misplaced trust at this stage,” he warned, pointing out that AI, while impressive, is not necessarily more intelligent than experienced investors.
Moreover, Cao noted that a widespread adoption of the same AI model could lead to a herding effect, where many investors are relying on the same signals for decision-making, potentially distorting the market.
Feng Ji, CEO of Baiont Quant, a machine-learning-based trading company, emphasized that DeepSeek has changed public perceptions of quantitative fund managers. He pointed out that the public is reconsidering the value of quant funds, noting that his company provides liquidity and enhances market efficiency, rather than causing losses for retail investors.
The growing influence of AI tools like DeepSeek marks a pivotal shift in how retail investors in China approach the stock market. While it opens new opportunities, the evolving landscape raises questions about the risks and limitations of relying on AI models for investment decisions. As the role of AI in China’s financial markets continues to expand, it will be crucial for investors to strike a balance between innovation and caution.
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