China’s AI and chip-heavy STAR50 index has fallen 40% in under four months, Reuters reports

Shanghai’s STAR50 index, which tracks leading AI and chip companies, has fallen 40% in less than four months, Reuters reported on October 26, wiping out about $480 billion in market value. Per Seoul Economic Daily, citing Reuters, the index closed at 1,315.50 on October 26, down 2.23% on the day and 26.39% over three months. The Nasdaq, by contrast, has pulled back only 6% from a record high three weeks earlier.

Traders pointed to elevated valuations, tax burdens and the risk that the US could bar the use of Chinese-made data center equipment, according to the report. The selloff followed regulatory guidance cracking down on leveraged and high-frequency trading, and state-owned investors sold into rallies to cool the market. As institutions sold, stocks heavily owned by retail investors fell hardest. Robot maker Unitree has lost about half its value since it began trading in August, and memory maker CXMT dropped more than 25% in the past month. Goldman Sachs says AI-related stocks make up 42% of China’s total market capitalization.

The index’s price-to-earnings ratio has come down from a peak of about 250 to near 100, still far higher than roughly 30 for the Nasdaq 100. Beijing fund manager Dong Baozhen described the market as a speculative frenzy and said the bubble was now bursting. Hong Hao of Lotus Asset Management said the slump would stop many companies preparing to list. HSBC says Asian funds have recently added Chinese exposure, and BNP Paribas strategist William Bratton sees a buying opportunity for cautious investors.