China's AI Bubble Has Already Burst, Reuters Reports
While global technology stocks wobble, China's have already crashed. The mainland STAR50 index of artificial intelligence and semiconductor leaders has fallen 40 per cent in less than four months, wiping out about USD 480 billion in market value, Reuters reported. The broad blue chip index is down roughly 20 per cent from its summer highs, and a rally that had run for two years has stalled.
The reversal also undercuts a policy aim. Beijing had been trying to break a long boom and bust pattern by encouraging savers into stocks and engineering a steadier market, and the collapse lands squarely on that effort.
And the mood among local managers is blunt. "The stock market later evolved into a speculative crazy bull," Dong Baozhen, a Beijing based fund manager, told Reuters. "And now we see the bubble bursting."
The damage reaches the retail favourites. Robot maker Unitree, which retail buyers oversubscribed 8,000 times at listing, has halved since it began trading in the summer. Memory chipmaker CXMT has lost more than a quarter of its value in a month, while MetaX Integrated Circuits and Moore Threads Technology, which jumped 700 per cent and 400 per cent on their debuts last year, have also halved since the summer.
There was no single trigger. Traders told Reuters that high prices, tax bills and the threat of the United States or other governments banning Chinese equipment from data centres all contributed. Optical parts makers Zhongji Innolight and Eoptolink Technology are down about 60 per cent from their highs, partly because Washington is moving to bar them from supplying US data centres.
And the concentration made it worse. AI stocks account for 42 per cent of China's market capitalisation and 57 per cent of turnover across mainland and Hong Kong listed shares, according to Goldman Sachs, so few investors in a market dominated by small holders have escaped.
The comparison with the United States is the part global investors are watching. US AI stocks have taken a far smaller hit, with the Nasdaq about 6 per cent below a record set three weeks ago. Even after the fall, the STAR50 trades at around 100 times trailing earnings, down from a peak near 250, against a multiple of 30 for the Nasdaq 100.
Frustration has consequences beyond portfolios. "What's happening is now going to put a stop for many of the companies trying to get themselves listed," Hong Hao, managing partner at Lotus Asset Management in Hong Kong, told Reuters. Money has moved into defensive assets, and tech fundraising is likely to slow.
But the authorities were never comfortable with the frenzy. Regulators have cracked down on margin trading and high frequency dealing, and state backed investors sold into rallies to keep gains in check. "Overemphasising the 'technology content', that is, the weighting of tech companies by market value in major indexes, leads to a deviation, even a distortion, in capital behaviour," said Leo Wang, partner at Qianchuang Capital in Beijing, who added that it created "a severe bubble in certain sectors and a serious drain on others."
The China Securities Regulatory Commission did not answer questions Reuters sent it. Not everyone reads the selloff as damage, with HSBC research showing Asia funds still overweight on China and Goldman Sachs keeping names such as Innolight and CXMT on a recommendation list.
Still, the fundamental question is whether the earnings exist. "Just like all other Chinese manufacturers, chipmakers and AI suppliers will eventually end up in a price war," said fund manager Wang Zhuo, partner at Shanghai Zhuozhu Investment Management. "There's no exception, and all bubbles inevitably burst."
The STAR50 index has fallen 40 per cent in under four months, wiping about USD 480 billion, per Reuters
AI stocks are 42 per cent of China's market value and 57 per cent of turnover, per Goldman Sachs
The STAR50 trades near 100 times trailing earnings against 30 for the Nasdaq 100
Unitree has halved since listing, CXMT is down more than a quarter in a month
Hong Hao of Lotus Asset Management expects the selloff to stall new listings
Source: Reuters
