Across the Chinese exchanges, a dream that many small investors had shared has begun to dissolve. Over the span of a few months, the AI and chip companies that had carried a two-year rally have lost hundreds of billions in value, and the ones once celebrated as national champions now stand as cautionary tales. No single cause explains the fall; it is the slow weight of high prices, distant foreign restrictions, and a market that rose faster than its foundations. Whether Beijing's hand will steady the water or merely watch the tide go out remains an open question.
In China, the AI Stock Bubble Has Already Burst as Tech Valuations Collapse
Retail investors, including small business owners, have suffered steep losses after buying into AI stocks such as Unitree, which has roughly halved since its August debut.
"All bubbles inevitably burst," one Shanghai fund manager said.
Mark
Forty percent in under four months. How big is that, really?
Mimi
About $480 billion in market value gone from the STAR50, and the broad blue-chip index is down about 20% from June. Because AI stocks are 42% of China's market cap, it reaches nearly everyone.
Mark
Why did it fall? Was there a trigger?
Mimi
Not an obvious one. Traders cite 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 selling trigger.
Mark
And the retail angle?
Mimi
Unitree was 8,000 times oversubscribed and has halved since August. Chen Wensheng said he bought partly because he sensed official support, and now he has losses.
Luke
That's one investor's perception of state backing. The article does say state-backed funds were Unitree investors, but it also says state investors sold into rallies.
Mark
So Beijing was both promoting and restraining?
Mimi
Roughly, yes. It wanted a slow bull, and got a speculative surge and a sharp reversal instead.
Luke
And whether this gets worse is open. The STAR50 is still around 100 times earnings, but Goldman and BNP see opportunities. Those are views, not forecasts we can count on.
Il Polso
- The STAR50 index of AI and chip leaders has plunged 40% in under four months, wiping out roughly $480 billion in value.
- Unitree, which drew oversubscription in the thousands, has roughly halved since its August debut, leaving retail buyers nursing losses.
- Optical parts makers Zhongji Innolight and Eoptolink are down about 60% as Washington moves to bar their equipment from US data centres.
- Beijing's carefully planned 'slow bull' is faltering, and regulators have not yet answered questions about how they will respond.
- Analysts split between warnings of a bubble bursting and bets that careful investors can still find value among the wreckage.
Across the Chinese exchanges, a dream that many small investors had shared has begun to dissolve. Over the span of a few months, the AI and chip companies that had carried a two-year rally have lost hundreds of billions in value, and the ones once celebrated as national champions now stand as cautionary tales. No single cause explains the fall; it is the slow weight of high prices, distant foreign restrictions, and a market that rose faster than its foundations. Whether Beijing's hand will steady the water or merely watch the tide go out remains an open question.
Unitree, the robot-maker, was 8,000 times oversubscribed by retail buyers when it listed. Since August, its shares have lost half their value, and that slide is one thread in a larger unraveling on Chinese exchanges, where the AI boom has turned into a rout.
The STAR50 index, which tracks the mainland's AI and semiconductor leaders, has fallen 40% in less than four months, erasing about $480 billion. The drop has halted a two-year rally that began with promises of economic stimulus. Fund manager Dong Baozhen described the market as a speculative bull that has now burst, while the damage to American AI stocks has been comparatively mild.
There was no single trigger. Traders pointed to high prices, tax concerns, and the threat that Washington could bar Chinese equipment from US data centres, a worry that has hit optical parts makers Zhongji Innolight and Eoptolink hard. Because AI stocks make up 42% of China's market capitalisation, and the market is dominated by small investors, the pain is widespread. Hainan small business owner Chen Wensheng bought in feeling backed by official endorsement, and now he and his friends are sitting on losses.
The episode cuts against Beijing's aims of a steady, lower-volatility market. Valuations remain high, and some fear worse ahead. Still, a few institutions see opportunity, and many observers wonder whether the bubble has finally burst or whether more pain is still to come.
Unitree, the robot-maker, was 8,000 times oversubscribed by retail buyers when it listed. Since it began trading in August, its shares have lost half their value. That slide is one thread in a much larger unraveling on Chinese exchanges, where the AI boom has already turned into a rout while much of the world's tech market is still only wobbling.
The STAR50 index, which tracks the mainland's AI and semiconductor leaders, has fallen 40% in less than four months. About $480 billion in market value has disappeared. China's broad blue-chip index is down roughly 20% from the highs it reached in June. The drop has halted a rally that had run for two years, ever since promises of economic stimulus sent shares climbing.
Beijing-based fund manager Dong Baozhen described how the market changed character: it evolved into a speculative crazy bull, he said, and now the bubble is bursting. By comparison, the damage to American AI stocks has been mild. The Nasdaq is down 6% from a record high set three weeks ago, with AI names leading the pullback.
There was no single obvious trigger. Traders pointed to a mix of high prices, tax bills, and the threat that the United States or other countries could ban Chinese equipment from data centres. That last worry has hit optical parts makers Zhongji Innolight and Eoptolink Technology, which are down about 60% from highs in June and July as Washington moves toward barring them from supplying US data centres.
The pain is widely spread because AI stocks make up 42% of China's market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares, according to Goldman Sachs, in a market dominated by small investors. Chipmaker CXMT has lost more than a quarter of its value in the past month. MetaX Integrated Circuits and Moore Threads Technology, which jumped 700% and 400% on their debuts last year, have both halved since July.
Chen Wensheng, a small business owner and investor from Hainan in the south, said he bought in feeling emboldened by what he saw as official backing for companies like Unitree, which counted state-backed funds among its investors. He and his friends are now sitting on losses. Frustration over a Beijing-endorsed theme ending this badly has pushed many investors toward defensive assets and is likely to slow equity fundraising by tech firms. Hong Hao of Lotus Asset Management in Hong Kong said the selloff will stop many companies that were trying to list.
Valuations remain high. The STAR50 trades at about 100 times trailing earnings, down from nearly 250 at its peak, against 30 for the Nasdaq 100, and some investors fear things could get worse before they improve.
The episode cuts against official aims. Authorities have been trying to lift returns and reduce volatility by cracking down on leverage and high-frequency trading, and state-backed investors sold into rallies to keep gains in check, in pursuit of a "slow bull" market. The China Securities Regulatory Commission did not immediately answer questions sent by Reuters last week. Its chairman, Wu Qing, met market participants earlier this month to hear suggestions on improving capital markets, according to the regulator's website. Leo Wang of Qianchuang Capital argued that overemphasising tech weighting in major indexes distorted capital behaviour, creating a severe bubble in some sectors and draining others.
Not everyone is gloomy. HSBC research shows Asia funds, though sellers over three months, remain overweight on China. Goldman Sachs put Innolight and CXMT among dozens of Chinese AI stocks on a revamped recommendation list earlier this month, and BNP Paribas Securities strategist William Bratton has said the market offers opportunities for the careful. On the mainland, though, many are eyeing other sectors or waiting for lower valuations. Shanghai fund manager Wang Zhuo 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 next: whether Beijing steps in, whether US data-centre bans widen, and how far tech fundraising slows.
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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Leggi l'originale su The Economic Times ↗
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