China’s AI stock bubble bursts as STAR50 slide deepens

China's AI bubble has already burst. The STAR50, which tracks the country's AI and semiconductor leaders, has fallen 40% in less than four months and erased about $480 billion in market value, Reuters reported on Monday. US tech stocks have only started to wobble, but in China the slide has stopped a two-year rally. It has also set back Beijing's effort to move household savings into equities to fund the AI boom.reuters.com

Few investors have escaped the losses. 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 The Goldman Sachs Group, Inc. ↘ 3.58%. The blue-chip CSI300 is down about 20% from its June highs, according to Reuters.reuters.com

Retail favorites halve

Robot maker Unitree drew 8,000 times more retail orders than it had shares at its listing, but its stock has halved since it began trading in August. Memory chipmaker CXMT has lost more than a quarter of its value in the past month. MetaX Integrated Circuits and Moore Threads Technology have both halved since July. Optical parts makers Zhongji Innolight and Eoptolink Technology are down about 60% from their peaks, partly because Washington is moving to ban them from supplying US data centres, Reuters reported.reuters.com

Traders saw no single trigger. They pointed instead to high valuations, tax bills and the risk that the US or other countries will ban Chinese equipment from data centres. "The stock market later evolved into a speculative crazy bull," Beijing fund manager Dong Baozhen told Reuters. "And now we see the bubble bursting."reuters.com

The decline continued on Monday. The STAR50 fell 2.2% and the ChiNext Composite dropped 1.71%, while the Shanghai Composite closed slightly higher, RTHK reported. Morgan Stanley analysts said worries about selling tied to trust taxes, a weakening economy and global volatility had sped up the correction, according to a Reuters market report.capital.com+1

Valuations still stretched

The STAR50 still trades at about 100 times trailing earnings, down from a peak near 250. The Nasdaq 100 trades at about 30 times. Hong Hao of Lotus Asset Management said the slump "is now going to put a stop for many of the companies trying to get themselves listed," Reuters reported. The index had climbed about 75% between April and June before reversing, Bloomberg reported.theedgemalaysia.com+1

Some see an opening. Goldman added Innolight and CXMT to a revised list of recommended stocks, and BNP Paribas strategist William Bratton said the market offers buying opportunities for careful investors. Others are less hopeful. "There's no exception," said Wang Zhuo of Shanghai Zhuozhu Investment Management, according to Reuters. "All bubbles inevitably burst."reuters.com