Equity losses among artificial intelligence stocks have fallen most heavily on China-based firms as the broader market for such holdings softens, putting pressure on state-supported strategies that had looked to share markets as a vehicle for advancing the country's technology sector.
China's Star50 Index, a technology-focused benchmark, shed close to 40% of its value through the first half of the year, placing it among the steepest-declining tech gauges tracked globally over that period. Valuations at both MetaX Integrated Circuits Shanghai Co. and Moore Threads Technology Co. have each contracted by roughly half across that span. Tracking hardware-oriented equities, the ChiNext index recorded a decline of 36 percent over the period.
The Star50's trajectory has shifted from the pattern seen earlier in the year, when the index climbed on the back of enthusiasm around artificial intelligence and anticipated government support, even as stretched valuations drew little concern from buyers. The initial burst of enthusiasm in Chinese equity markets has since reversed course, with persistent selling reflecting investor uncertainty over demand trajectories and corporate earnings — a dynamic that carries particular consequence given how extensively domestic companies depend on share issuances to fund their operations.
Leonid Mironov, a portfolio manager at Gavekal Capital, put forward the view that keeping AI ambitions on track would grow considerably harder under prolonged weakness in technology stocks, with any downturn stretching past six months likely to tighten access to fresh capital while also indicating that the investment community had yet to be persuaded by the pace at which new technologies were advancing — all of this against a backdrop in which the Star50 index had posted a gain of around 75% between April and June, outpacing Korea's Kospi, driven by expectations tied to domestic technological progress and the support of state-directed policy.
At its June 30 high-water mark, the index was changing hands at a forward price-to-earnings multiple above 80. When investor appetite reversed course, elevated valuations across the sector turned from a strength into a vulnerability — a pattern that analysts at one financial news outlet described in a research note, observing that the AI-hardware downturn sweeping both the Nasdaq and South Korean markets landed with particular force on China's onshore A-share equities, where overseas capital had built up a concentrated position during the second quarter.
Net withdrawals through the stock-connect programme linking Hong Kong to mainland Chinese equity markets came to roughly 90 billion yuan (about $13.5 billion) across the July-to-September period — the steepest quarterly drain in a year and enough to wipe out more than half of the capital that had flowed in during the preceding three months.
Pressure from the broader market downturn has also weighed on the debut trading performance of some newly listed Chinese companies. Shares in CXMT Corp., the memory-chip maker that listed in July, have retreated 27% from the high they reached shortly after trading began. Shares in Yushu Technology Co., the robotics company, have retreated by roughly half from the peak they reached in August, not long after the stock began trading publicly.
Aggregate proceeds from domestic listings by Chinese firms reached $37 billion so far this year, a total that pushed the full-year fundraising tally to its highest point in three years, compiled data shows. More than a third of the capital raised came from technology companies.
Disappointing results from technology-listed firms have placed those responsible for policy in an uncomfortable position — caught between hopes that equity markets will drive corporate growth and the muted reality those markets are currently producing. Equity financing has drawn notably more interest from the nation's AI-linked flagship firms and newer ventures than debt instruments have, a pattern tied in part to the steeper costs those entities face when tapping global bond markets.
Mironov described equity markets as the primary financing channel for China's AI companies, adding that a drawn-out downturn would put pressure on authorities to accelerate financial sector reforms and potentially deploy state-backed stabilisation funds at greater scale. At a meeting convened around the goal of steadying financial markets, those in attendance put forward a directive calling on government-backed investors to pick up the pace of their share purchases.
Third-quarter earnings reports, when they arrive, could lift investor confidence if the numbers come in on the stronger side. Trading at a valuation exceeding 40 times forecast earnings, the Star50 stands well clear of the Kospi Index — which carries a sub-five multiple — and the Nasdaq 100, where the figure sits at around 21 times. That spread led Jian Shi Cortesi, a fund manager at Gam Investment Management, to describe the ongoing pullback as a technical correction rather than an entry point, with her view being that price drops of 30% to 50% would need to materialise before many technology names carrying growth potential reach levels she would consider attractive for investment.
