Money has become incredibly concentrated in one country and a few stocks, does a Chinese AI leap restart the case for global allocations?
Tyler Mordy sees a ‘protectionist paradox’ in the sudden arrival of DeepSeek, the Chinese AI company that wiped out billions in US tech stocks’ market cap. Despite US prohibitions on the sale of key hardware components to China, DeepSeek appears to have made a powerful and effective generative AI large language model with outdated chips and a focus on more efficient inference and a claimed spend of only $5.6 million (USD). While he notes that some of the details are debatable, the CEO and CIO at Forstrong Global Asset Management explained that such innovations are paradoxically driven, at least in part, by US sanctions rather than being hindered by them.
Mordy outlined that when a large economy like the United States imposes protectionist policies on its trading partners, those trading partners are often forced to innovate. In the context of a US government doubling down on protectionism and a global investment story that has revolved almost exclusively around a few large US companies in recent years, Mordy sees a return to global competition with the emergence of a Chinese AI competitor as simply one case in point.
“The big takeaway is that we’re witnessing the return of true global competition, and that’s not just in AI, it’ll reach far into other sectors and asset classes,” Mordy says. “The DeepSeek model isn’t superior to its US counterparts, and they still face hardware constraints, but the key point is that they were able to produce something that’s comparable to US platforms with less cost and limited access to chips..”
The success of DeepSeek, Mordy explains, was in focusing on inference efficiency, a software process that improves AI models’ ability to generate responses based on existing knowledge, rather than the sheer computational power required to process vast amounts of new data for a response. Until DeepSeek’s success became apparent, US companies were focused on spending heavily to build their computational power. They bought an astronomical number of Nvidia GPUs to build computational moats around their AI businesses. DeepSeek showed that this might not be totally necessary, undermining one of the core tents of the AI bull market—that spending billions of dollars on chips will build ever-bigger moats for US mega-cap tech stocks.
The market’s adoration of US technology mega-caps in the past few years, Mordy explains, has been a bet on US exceptionalism. He acknowledges that the US is exceptional in many ways: for its business-friendly environment, its efficient connection between universities and private enterprise, and the sheer volume of capital and talent being funnelled towards innovation. However, DeepSeek’s emergence serves as a reminder that meaningful competition in areas like AI is beginning to emerge from global players.
From an investor’s standpoint, Mordy does not see this emerging competition as some kind of end to the US equity bull market. He does, however, see a broadening of investor appetites away from the Magnificent Seven and towards other sectors, styles, and geographies. Just looking at US markets during Monday’s correction, Mordy sees support for his view.
“The S&P 500 had a breadth thrust on Monday, meaning more stocks advanced than declined—a sign of broad market strength. Notably, Nvidia declining didn’t drag down the rest of the market,” Mordy says. “The last few years have actually witnessed weak risk appetites, with investors flocking to the Magnificent Seven simply because they couldn’t see opportunities elsewhere. They stuck with what they knew. But our investment team sees Deepseek as a major innovation shock—one that forces investors to ask: if America no longer has a monopoly on innovation, what else are we missing?”
While noting that the year has just begun, Mordy cites broad performance in 2025 so far as validation of that thesis. He notes that the top performing global asset classes have been areas like European equities and US financials with the mega-cap names in the Magnificent Seven among the bottom performers.
This could also represent something of a mindset shift for investors on China specifically. Mordy has long pushed back on the idea that China was ‘turning Japanese’ following the onset of its real estate issues. He notes that China has already worked to leapfrog other industrial economies on key sectors, notably on electric cars. He now sees opportunity in Chinese equities as well as in wider emerging markets as investors reconsider the concentration of their US allocations and seek breadth of exposure elsewhere.
As advisors look at this opportunity set and try to explain a complex technological and geopolitical story to clients Mordy acknowledges the challenging work ahead of them. He notes that after so many years of US market outperformance there is very little appetite among investors to look more globally. Nevertheless, he believes that the DeepSeek story can show clients that innovation can happen because of US protectionism and global diversification can offer exposure to the winners in this next stage of global competition.
“Global diversification is more important than ever right now,” Mordy says. “With uncertainty surrounding tariffs, Trump and broader geopolitical shifts, innovation is quietly emerging from unexpected places—reinforcing the need for a globally diversified approach. As portfolio managers, we must assess the full spectrum of investment opportunities available and, right now, the risk-reward profile for international investments looks incredibly compelling. In a world as unpredictable as this, leaning on global diversification isn’t just smart—it’s essential for managing risk and maximizing the potential for strong client outcomes.”
