New Delhi: Chinese AI and chip stocks have fallen hard since July. Investors who piled in on the promise of a state-backed technology boom are now sitting on steep losses.
The STAR50 index, which tracks China’s AI and semiconductor leaders, is down nearly 40% from its July peak, wiping out roughly $480 billion in market value in under four months. The blue-chip CSI 300 has fallen about 20% from its June high, a drop that puts it at the usual threshold for a bear market.
The scale of the slide matters because of how much of China’s market now rests on a single theme. Goldman Sachs estimates AI stocks make up 42% of the market capitalization of mainland A-shares and Hong Kong H-shares, and 57% of turnover. When a sector that large turns, the effects spread well beyond tech specialists.
Retail darlings hit hardest
The sharpest damage has landed on names that small investors chased. Robotics company Unitree, whose listing drew subscriptions at a ratio of 8,000 to 1, has halved since its August debut. That debut had been spectacular: shares surged about sevenfold on the first day of trading in Shanghai, lifting the company’s valuation to the equivalent of roughly 43 billion euros.
Memory chipmaker CXMT has dropped more than a quarter in a month, and optical components makers Innolight and Eoptolink are down about 60% from their peaks.
No single trigger
Reuters reported that there was no clear catalyst for the selling. Traders pointed to lofty share prices, taxes, and fears the United States could ban Chinese equipment from data centres. Valuations remain a concern even after the fall. The STAR50’s price-to-earnings ratio has come down from a peak of 250 but still sits around 100, against about 30 for the Nasdaq 100, which is why some analysts worry the correction isn’t finished.
Foreign money has also been leaving. Estimated outflows through the Hong Kong trading link reached about 90 billion yuan ($13.5 billion) in the third quarter, reversing more than half of the inflows from April to June. That rally was dramatic: the STAR50 climbed roughly 75% between April and June.
A policy problem as well as a market one
Beijing has leaned on equity markets to help finance its AI ambitions, so a prolonged slump carries political weight. The selloff could complicate funding for AI companies that prefer raising equity over borrowing at higher international rates, and Chinese firms have raised $37 billion in domestic IPOs this year, the most in three years. One Hong Kong fund manager told reporters, according to a Chinese-language report on the Reuters analysis, that many companies preparing to list would likely shelve those plans.
There are counterarguments. Some observers don’t expect the correction to derail the government’s market reforms. Goldman Sachs even named Innolight and CXMT in a recommended list it issued this month.
Does it matter for the US?
The Nasdaq has held up far better so far. The Nasdaq Composite is down about 6% from a record high set three weeks ago. Still, the gap in valuations and the fragile mood around technology stocks globally have led some commentators to treat China’s slide as a warning. The US sell-off scenarios circulating on social media, including large trillion-dollar loss estimates, are projections rather than reported results, and readers should treat them cautiously.
What happens next depends on a few things: whether earnings from the big AI spenders show demand holding up, whether Washington tightens restrictions on Chinese hardware, and whether Beijing steps in with more support. For now, investors in China’s AI trade are discovering how quickly a crowded bet can reverse.
