In the autumn of this year, the enthusiasm that carried China's AI and chip companies upward for two years has begun to fall back toward earth. Roughly four months after a sharp slide started, the STAR50 index of leading technology names has lost about 40 percent of its value, taking some $480 billion with it, and the small investors who rushed in on promises of state support now carry the weight of that loss. It is a familiar human pattern, the belief that prices can only climb, meeting the old truth that every bubble eventually meets its reckoning, and it comes at a moment when Beijing is tr
In China, the AI Bubble Has Already Burst as Tech Valuations Collapse
All bubbles inevitably burst.
Mark
Forty percent in under four months is a big number. What's the headline here?
Mimi
Roughly $480 billion in value gone from the STAR50, and it's hit a market where small investors dominate. AI stocks are 42 percent of market capitalisation, so few people escaped.
Mark
Why did it fall? Was there a trigger?
Mimi
Not an obvious one. Traders cited high prices, tax bills, and the risk of US or other bans on Chinese equipment in data centres.
Luke
Worth noting that's traders' explanation, not an established cause. The reporting says plainly there was no clear trigger.
Mark
And the human side?
Mimi
Chen Wensheng in Hainan bought in believing there was official support, since state-backed funds held Unitree. He and his friends are now losing money.
Luke
That's one investor's account of his own reasoning. It shows a motive, but we don't know how widely that belief drove buying.
Mark
Is everyone gloomy?
Mimi
No. HSBC says Asia funds are still overweight China, and Goldman and BNP see opportunities. Others say valuations, still about 100 times earnings, need to fall further.
Luke
Those bullish views are forecasts from firms, not outcomes. And the regulator hasn't answered questions yet, so Beijing's response is still unknown.
Il Polso
- The STAR50 index of AI and chip leaders has shed about 40 percent in under four months, erasing roughly $480 billion in market value.
- Unitree shares, once 8,000 times oversubscribed, have lost half their worth since August, and retail investors who chased the rally are nursing heavy losses.
- Valuations near 100 times trailing earnings, down from almost 250 at the peak, still sit far above the Nasdaq 100's roughly 30, leaving fears that the decline has further to run.
- Beijing is trying to steady the market with a 'slow bull' strategy, cracking down on leverage and high-frequency trading, but the selloff has stalled that effort.
- Possible US curbs on Chinese optical and chip suppliers could deepen the slide, and the outcome will reveal whether the regulator's plan can hold.
In the autumn of this year, the enthusiasm that carried China's AI and chip companies upward for two years has begun to fall back toward earth. Roughly four months after a sharp slide started, the STAR50 index of leading technology names has lost about 40 percent of its value, taking some $480 billion with it, and the small investors who rushed in on promises of state support now carry the weight of that loss. It is a familiar human pattern, the belief that prices can only climb, meeting the old truth that every bubble eventually meets its reckoning, and it comes at a moment when Beijing is trying to build a steadier, more patient market than the boom-and-bust cycles of the past.
Shares in Unitree, the Chinese robot-maker, were oversubscribed 8,000 times by retail buyers when they listed. Since trading began in August, they have lost half their value. That single figure hints at a far larger collapse across the mainland, where the STAR50 index of AI and semiconductor leaders has dropped 40 percent in under four months, erasing around $480 billion.
The slide ends a two-year rally that began when stimulus promises lifted Chinese shares. There was no obvious trigger. Traders pointed to high prices, looming tax bills, and the threat that Washington or other governments might ban Chinese equipment from data centres. A Beijing fund manager, Dong Baozhen, described a speculative frenzy that is now bursting.
The damage runs deep because AI stocks make up 42 percent of China's market value and 57 percent of trading. Retail investors dominate the market. Chen Wensheng, a small business owner from Hainan, bought in believing Unitree had official backing. He and his friends are now nursing losses, and many investors are retreating to safer assets, which will likely slow fundraising by tech firms.
Valuations remain stretched, and investors fear worse may come before things improve. Beijing had hoped for a steady 'slow bull' market, but the selloff has undercut that goal. Some analysts remain hopeful, and Goldman Sachs has put several names back on its recommendation list. Still, many investors are waiting for lower prices, and one fund manager warned that all bubbles inevitably burst. What comes next depends on whether US curbs deepen the slide and whether Beijing's patient vision survives.
Shares in Unitree, the Chinese robot-maker, were 8,000 times oversubscribed by retail buyers when they listed. Since trading began in August, they have lost half their value. That is one marker of a much larger collapse on the mainland, where the STAR50 index of AI and semiconductor leaders has fallen 40 percent in under four months and erased some $480 billion in market value.
The fall has halted a two-year rally that began when economic stimulus promises sent Chinese shares climbing. China's broad blue-chip index is down about 20 percent from its June highs. The contrast with the United States is stark: American AI stocks have led a 6 percent drawdown in the Nasdaq from a record set three weeks ago, which the source describes as a mere prick by comparison.
There was no obvious trigger. Traders pointed to a mix of high prices, tax bills, and the threat that the US or other countries might ban Chinese equipment from data centres. Beijing-based fund manager Dong Baozhen said the market had turned into a speculative crazy bull, and that the bubble is now bursting.
The damage is widespread because AI stocks make up 42 percent of China's market capitalisation and 57 percent of turnover across mainland A-shares and Hong Kong H-shares, according to Goldman Sachs. The market is dominated by small investors. Chipmakers MetaX Integrated Circuits and Moore Threads Technology, which jumped 700 percent and 400 percent on their debuts last year, have halved since July. CXMT has lost more than a quarter of its value in the past month. Optical parts makers Zhongji Innolight and Eoptolink Technology are down roughly 60 percent from their June and July highs, partly because Washington is moving toward banning them from supplying US data centres.
Chen Wensheng, a small business owner and investor from Hainan in southern China, said he bought in because he felt Unitree had official backing, since state-backed funds were among its investors. He and his friends are now nursing losses. That frustration is pushing many investors into defensive assets and is likely to slow equity fundraising by tech firms. Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong, said the selloff will stop many companies trying to list.
Valuations remain high. The STAR50 trades at around 100 times trailing earnings, down from nearly 250 at its peak, against about 30 for the Nasdaq 100, and investors worry things may get worse before they improve.
The episode also undercuts Beijing's aims. Authorities had been trying to improve returns and calm volatility by cracking down on leverage and high-frequency trading, and state-backed investors sold into rallies to hold gains in check. The goal was a reliable "slow bull" market rather than the old boom and bust, and that push has stalled. The China Securities Regulatory Commission did not immediately answer questions faxed by Reuters last week. Its chairman, Wu Qing, met market participants earlier this month to hear suggestions for improving capital markets, the regulator said on its website. Leo Wang of Qianchuang Capital argued that weighting tech companies so heavily in major indexes distorted capital behaviour, creating a severe bubble in some sectors and a serious drain on others.
Not everyone is bearish. HSBC research shows Asia funds are overweight on China despite three months of selling. Goldman Sachs put Innolight and CXMT on a revamped recommendation list earlier this month, and BNP Paribas Securities strategist William Bratton has said the market offers opportunities for the careful. Still, many mainland investors are looking at other sectors or waiting for lower valuations. Fund manager Wang Zhuo of Shanghai Zhuozhu Investment Management expects chipmakers and AI suppliers to end up in a price war like other Chinese manufacturers. "All bubbles inevitably burst," he said. What to watch is whether US curbs on Chinese suppliers deepen the slide and whether Beijing's slow-bull project survives it.
Citazioni salienti
The stock market later evolved into a speculative crazy bull, and now we see the bubble bursting.— Dong Baozhen, Beijing-based fund manager
All bubbles inevitably burst.— Wang Zhuo, Shanghai Zhuozhu Investment Management
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