February 2026 | Capital Markets & AI Strategy
Executive Summary
In early 2026, a striking bifurcation emerged in global investor sentiment toward artificial intelligence. US equity markets entered what analysts termed an “AI scare trade” — a broad selloff in software, wealth management, and incumbent technology firms driven by concern that accelerating AI capabilities would erode established profit pools. Chinese markets, by contrast, experienced a euphoric re-rating of AI pure-play listings, with newly debuted large language model (LLM) developers on the Hong Kong Stock Exchange posting gains of 400–500% within weeks of listing.
Singapore, as Asia’s premier financial hub and a leading AI adopter in its own right, sits at the intersection of these two narratives. The city-state is simultaneously a home base for analysts and investment strategists who articulate the divergence, a key beneficiary of the infrastructure investment underpinning China’s AI ambitions, and a jurisdiction whose own economic growth forecasts have been revised upward on the basis of sustained AI-related demand.
This case study examines the structural, regulatory, and psychological drivers of this sentiment divergence; analyses the specific dynamics of Chinese AI listings; and assesses Singapore’s evolving role as both observer and participant in the global AI investment cycle.
- Background: The AI Scare Trade in US Markets
By early 2026, artificial intelligence had moved from a speculative theme to a demonstrable competitive threat in US capital markets. The proliferation of capable AI models — particularly following the “DeepSeek Moment” of January 2025, when a Chinese startup demonstrated frontier-level model performance at a fraction of previously assumed cost — forced investors to reconsider the long-term earnings sustainability of a wide range of incumbent businesses.
1.1 Mechanism of the Scare Trade
The core logic of the scare trade operates through a margin compression thesis. If AI tools can automate knowledge work at scale and at low cost, then firms charging premium fees for knowledge-intensive services — asset managers, software vendors, consulting-adjacent technology platforms — face structural pressure on the profit margins that underpin their current valuations. This is distinct from a general market downturn; it is sector-specific anxiety about the permanence of historically high returns.
Software firms face commoditisation pressure as AI lowers barriers to building competing functionality.
Wealth managers and financial services platforms face disruption from AI-powered investment and advisory tools.
Incumbent technology giants risk losing enterprise IT spending to cheaper AI-native alternatives.
The result, in US equity markets, was a pattern of selling in firms that had previously been considered AI beneficiaries — precisely because their positions were now understood to be exposed rather than protected.
Analyst View “In the US, there’s anxiety about rich profit pools getting competed away.” — Charu Chanana, Chief Investment Strategist, Saxo Markets Singapore (February 2026)
- China’s Contrasting Bull Market in AI
China’s AI equity narrative in early 2026 was shaped by forces largely absent from the US investment landscape: a scarcity of listed pure-play AI names, a regulatory environment that insulates domestic models from foreign competition, and an investor psychology still oriented toward AI as a growth-penetration story rather than a disruption-risk story.
2.1 The Listing Catalyst
The Hong Kong Stock Exchange debuted several significant AI-focused listings in January 2026, most notably MiniMax Group Inc and Knowledge Atlas Technology JSC Ltd (Zhipu AI). Both companies develop and deploy proprietary large language models and had previously been accessible only to private investors. Their public listings created, for the first time, a liquid vehicle through which global institutional and retail investors could obtain direct exposure to Chinese frontier AI development.
The market’s response was extraordinary. Zhipu shares rose approximately 524% and MiniMax approximately 488% within weeks of listing. For context, OpenAI and Anthropic — the most prominent comparable Western LLM developers — remain privately held, with valuations that can only be accessed through private funding rounds (Anthropic at approximately US$380 billion as of February 2026; OpenAI approaching US$850 billion). This structural scarcity premium amplified demand for the newly listed Chinese names.
2.2 Structural Insulation and Competitive Moats
A second key driver of Chinese AI market optimism is the regulatory and geopolitical environment that limits foreign LLM penetration into the Chinese domestic market. Services from OpenAI, Google DeepMind, and Anthropic are not freely accessible to Chinese consumers and enterprises. This creates a protected competitive landscape in which domestic model developers — DeepSeek, Zhipu, MiniMax, Moonshot AI — compete primarily with each other rather than with the global frontier.
Market Structure Note “Foreign large language models have limited access to the domestic market, giving local model makers a clear run.” — Gary Tan, Portfolio Manager, Allspring Global Investments Singapore (February 2026)
This insulation has a dual effect: it supports the earnings sustainability of domestic AI firms, and it redirects the disruption narrative. Rather than asking who will be put out of business by AI, Chinese investors are asking which domestic AI platform will capture the largest share of a rapidly expanding addressable market.
2.3 Model Performance and Benchmark Momentum
The February 2026 rally was accompanied by concrete technical developments that provided fundamental justification for investor optimism. Zhipu’s release of GLM-5, its latest LLM, claimed the top position among open-source models globally on the Artificial Analysis benchmarking platform — the highest ranking ever achieved by a Chinese AI laboratory. MiniMax received buy-equivalent initiations from Morgan Stanley, Jefferies, and UBS, with Morgan Stanley projecting revenue of approximately US$700 million by 2027, implying close to a tenfold increase over two years. DeepSeek was also expected to release a next-generation model imminently, adding further sector momentum.
- Comparative Analysis: US vs. China vs. Singapore
The table below summarises the key dimensions along which investor sentiment, market structure, and strategic positioning differ across the three markets.
Dimension US Market China Market Singapore Position
Investor Framing Disruption anxiety — fear AI erodes incumbents Growth optimism — focus on AI penetration and adoption Intermediary — hosts analysts from both camps
Dominant Narrative “AI scare trade”: tech/software selloff AI champion rally: pure-play LLM stocks surge 400-500% Beneficiary of both AI infrastructure build-out and capital inflows
Key Stocks Software, wealth managers under pressure MiniMax (+488%), Zhipu (+524%), Biren Tech (+80%) SGX-listed tech; regional fintech and data centre plays
Structural Driver Rich profit pools at risk of competitive erosion Regulatory insulation; limited foreign LLM access Neutral hub; AI compute demand anchors GDP growth
Valuation Concern Rich valuations compressed by disruption risk Re-rating risk if earnings fail to match optimism Exposure via global institutions headquartered in SG
- Singapore’s Distinctive Role
Singapore occupies a structurally unique position in this investment landscape. It is neither the epicentre of the scare trade (the US) nor the site of the pure-play AI euphoria (China’s Hong Kong-listed stocks). Instead, Singapore functions simultaneously as a financial intermediary, an AI infrastructure hub, a regulatory model, and an economic beneficiary of the broader AI investment supercycle.
4.1 Singapore as Financial Intermediary
Several of the most frequently cited analysts articulating the US-China AI sentiment divergence are based in Singapore. Saxo Markets’ Chief Investment Strategist and Allspring Global Investments’ Singapore-based portfolio managers were among those who defined the divergence publicly in February 2026. This reflects Singapore’s role as a hub for regional investment strategy: a location from which both Chinese and Western market dynamics are assessed and translated for global institutional clients.
In 2025, China overtook the United States as the largest source of fixed asset investment into Singapore — a significant geopolitical and economic data point. The city-state’s investment commitments rose despite global uncertainty, positioning it as a preferred destination for Chinese capital that seeks international diversification without the friction of direct access to Western markets.
4.2 AI Infrastructure and Economic Impact
Singapore has made a deliberate and sustained commitment to AI infrastructure under its National AI Strategy 2.0, announced in December 2023. By 2025, this had translated into over S$1.6 billion in government funding, approximately $26 billion in committed investments from major technology firms, and a data centre market valued at approximately $4.16 billion projected to reach $5.60 billion by 2030. Singapore generates an estimated 15% of NVIDIA’s global revenue — a remarkable concentration for a city-state of 5.9 million people.
GDP Revision Singapore’s Trade Ministry upgraded its 2026 growth forecast from 1-3% to a revised range factoring in “sustained momentum in the AI investment boom” — Trade Ministry Chief Economist Yong Yik Wei, February 2026
Singapore’s economy grew 6.9% year-on-year in Q4 2025, above the official advance estimate of 5.7%. Full-year 2025 growth came in at 5.0%. The government cited robust AI-related demand as a key driver of non-oil domestic export growth projections, upgraded to 2-4% for 2026.
4.3 AI Adoption Leadership
Singapore ranks second globally in AI adoption rates among the working-age population, with approximately 60.9% of the workforce using AI tools as of end-2025, according to Microsoft’s AI Economy Institute. Only the UAE ranks higher globally, and Singapore sits significantly above the United States (28.3%, ranked 24th). This positions Singapore not merely as an AI infrastructure host but as a genuine user-adopter economy — consistent with the “penetration” framing that characterises Chinese investor sentiment more broadly, and distinct from the disruption-anxiety framing prevalent in the US.
4.4 Singapore as Geopolitical Buffer
In a world defined by US-China technology competition, Singapore’s strict political neutrality and rule-of-law environment make it a preferred location for multinational technology firms that must navigate both regulatory landscapes. Major cloud providers, AI research labs, and financial institutions maintain significant Singapore presences precisely because the city-state offers access to Southeast Asian and broader Asian markets without forcing a binary geopolitical commitment. This positioning is likely to become more, not less, valuable as AI-related export controls and technology competition intensify.
- Risk Factors and Counterarguments
While the bullish Chinese AI narrative and Singapore’s intermediary role both have structural support, several significant risk factors must be acknowledged.
5.1 Earnings vs. Valuation Mismatch in Chinese AI Stocks
The extraordinary price gains of MiniMax and Zhipu in February 2026 reflected investor enthusiasm for the category and scarcity premium rather than demonstrated earnings power. Morgan Stanley’s projections of ~US$700 million revenue for MiniMax by 2027 remain estimates, and the multiple expansion required to justify current valuations depends on sustained, rapid revenue growth in a competitive domestic market. As one analyst noted, the re-rating may prove difficult to sustain if earnings growth fails to keep pace with investor optimism.
5.2 The Hang Seng Tech Reversal of Early 2026
More recent data from February 2026 indicates that the Chinese tech rally has already shown signs of reversal. The Hang Seng Tech Index entered bear market territory — down more than 20% from its October 2025 peak — triggered in part by fears of value-added tax increases on internet services. This underscores that the China AI narrative, while structurally supported, remains vulnerable to domestic policy risk and that the “insulated landscape” framing can work against investors when regulatory headwinds emerge from within rather than from foreign competition.
5.3 Selective Disruption Risk Overlooked in China
Some market observers caution that Chinese investors, in their focus on AI champions and enablers, may be underweighting disruption risks to the broader Chinese corporate landscape. AI-driven automation and cost compression do not spare Chinese incumbents indefinitely; they simply operate on a different timeline and through different channels than in the US. The sectors most exposed include logistics, back-office financial services, and customer service — all of which represent significant employment and earnings bases in China.
5.4 Singapore’s Dependency Concentration
Singapore’s deep integration with both the global AI infrastructure build-out and Chinese capital inflows creates a concentration risk. A sharp correction in either AI-related capital expenditure globally or a sudden deterioration in US-China relations could affect Singapore’s data centre market, export demand, and investment flows simultaneously. The city-state’s economic resilience has historically depended on its ability to navigate great power competition — a skill that will continue to be tested.
- Strategic Implications
For Investors
The US-China AI sentiment divergence reflects genuinely different market structures and competitive dynamics, not merely irrational exuberance or unwarranted fear.
Pure-play LLM exposure remains structurally scarce globally; the Hong Kong listings of Chinese AI firms address a real gap, though at elevated valuations.
Singapore-listed and Singapore-domiciled firms in data infrastructure, financial technology, and AI-enabled services represent a lower-beta proxy for the AI investment thesis with structural macroeconomic support.
Portfolio managers should distinguish between AI “disruption plays” (US-framing), AI “penetration plays” (China-framing), and AI “infrastructure plays” (Singapore-framing) as analytically distinct investment theses.
For Policymakers
Singapore’s National AI Strategy 2.0 has demonstrably positioned it to benefit from the global AI capital cycle; sustained public investment in compute infrastructure, talent, and regulatory clarity remains critical.
The city-state’s success as a geopolitical buffer depends on maintaining credible neutrality as AI becomes increasingly entangled with national security considerations.
For Business Leaders
Chinese AI cost competitiveness — exemplified by DeepSeek’s efficiency gains — is accelerating user adoption globally, including in Southeast Asia. Firms in Singapore and the region should anticipate faster AI diffusion than Western adoption curves might suggest.
The “penetration vs. disruption” framing is itself a strategic choice: organisations that position AI as an enabler of growth (rather than a threat to manage) are likely to capture disproportionate competitive advantage.
- Conclusion
The divergence in investor sentiment toward AI between US and Chinese markets in early 2026 is not a temporary anomaly driven by differing levels of information or sophistication. It reflects a structurally coherent set of differences: in market maturity, regulatory environment, competitive landscape, and the stage of AI penetration in each economy. The US investor is, with some reason, concerned about margin erosion. The Chinese investor is, with some reason, excited about market creation. Both are right about their respective contexts.
Singapore’s position in this bifurcated world is genuinely distinctive. It is a city-state that has invested early and intelligently in AI infrastructure, achieved world-leading adoption rates, attracted Chinese capital at scale, and established itself as the analytic and financial intermediary through which the global AI investment narrative is interpreted. Its economic performance in 2025-2026 — driven in part by exactly this AI tailwind — suggests that the “AI infrastructure play” thesis is not merely theoretical.
The central challenge ahead is whether Singapore can sustain its neutrality premium as AI becomes more deeply entangled with geopolitical competition, and whether the city-state’s domestic AI capabilities evolve beyond infrastructure hosting toward genuine intellectual and commercial leadership in the field. The foundations are in place. Execution, as always, will be the test.
Sources & References
Bloomberg / Yahoo Finance. “China defies global AI scare trade as investors chase winners.” February 22, 2026.
PineBridge Investments. “2026 Asia Equity Outlook: Global Shifts, Constructive Views.” 2026.
Microsoft AI Economy Institute. “Global AI Adoption in 2025.” January 9, 2026.
Reuters / Investing.com. “Singapore raises 2026 growth forecast on global economic momentum and AI demand.” February 2026.
China-Global South Project. “Singapore Investment Commitments Rise in 2025 as China’s Share Soars.” February 9, 2026.
AInvest. “Chinese AI Stocks: Flow Analysis of the 2026 Rally and Reversal.” February 2026.
Introl Blog. “Singapore’s $27B AI Revolution Powers Southeast Asia 2025.” August 2025.
Feature Asia. “Asia’s Equity-Deal Pipeline Stays Strong, but AI Valuation Risk Could Shape 2026 Listings.” December 2025.