China drafts AI export curbs amid tech stock meltdown

China's AI stock boom has gone into reverse. The mainland STAR50 index of artificial intelligence and semiconductor leaders has fallen 40% in less than four months, wiping out about $480 billion in market value, Reuters reported on October 26. The sell-off has ended a rally that ran for two years. It has also set back Beijing's effort to build a steadier "slow bull" market, and the blue-chip CSI 300 is down about 20% from its June high.reuters.com

The losses reach well beyond a few speculative names. Goldman Sachs The Goldman Sachs Group, Inc. ↗ 1.47% estimates that 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 Reuters. Small investors dominate that market, so few have avoided losses.reuters.com

Retail favourites halve

Robot-maker Unitree drew retail orders 8,000 times the shares on offer at its listing, but its stock has halved since trading began in August. Memory chipmaker CXMT has lost more than a quarter of its value in the past month, Reuters reported. MetaX Integrated Circuits and Moore Threads Technology rose 700% and 400% on their debuts last year and have also halved since July.reuters.com

Traders pointed to no single trigger. They cited high prices, tax bills and the risk that the US or other countries could ban Chinese equipment from data centres. Optical-component makers Zhongji Innolight and Eoptolink are down about 60% from their summer highs as Washington moves to limit their supplies to US data centres, according to Reuters' Japanese service. Citing Bloomberg data, Geo News reported that state-backed funds put about $19 billion into exchange-traded funds in one week to slow the slide.geo.tv+1

Valuations still stretched

Even after the drop, the STAR50 trades at about 100 times trailing earnings. That is down from nearly 250 times at its peak but still well above the Nasdaq 100's multiple of about 30, Reuters reported. In the US, AI stocks have led a much smaller drawdown of about 6% in the Nasdaq Composite from its record high.reuters.com

Hong Hao of Lotus Asset Management said the reversal could put many planned listings on hold, according to Tech Times. The downturn now sits alongside new regulatory pressure, including draft Chinese rules that would restrict exports of 23 AI-related technologies, Reuters reported on October 28.techtimes.co.uk+1

Not everyone is selling. Goldman Sachs still recommends dozens of Chinese AI stocks, including Zhongji Innolight and CXMT, and BNP Paribas strategist William Bratton sees buying opportunities for investors who choose carefully, Reuters reported. Others expect more trouble. "Just like all other Chinese manufacturers, (chipmakers and AI suppliers) will eventually end up in a price war," fund manager Wang Zhuo told Reuters. "All bubbles inevitably burst."reuters.com+1