Chinese artificial intelligence (AI) and technology stocks have emerged among the biggest casualties of the global AI market downturn, threatening Beijing’s ambitions to strengthen its technology industry through stock market financing.
The Star50 Index, dominated by domestic technology firms, has plunged nearly 40% during the current half-year period, making it the worst-performing major technology benchmark globally.
China’s ChiNext Index, which has significant exposure to hardware companies, has declined 36%.
Leading semiconductor companies MetaX Integrated Circuits Shanghai and Moore Threads Technology have each lost approximately half their market value during the period.
AI Stock Rally Reverses
The sharp correction follows a strong rally earlier this year, when investors backed Chinese technology companies amid government support and enthusiasm surrounding AI developments.
Between April and June, the Star50 surged approximately 75%, outperforming South Korea’s Kospi Index.
However, concerns about earnings prospects and future demand subsequently weakened investor confidence.
At its June 30 peak, the index traded above 80 times forward earnings, leaving technology stocks vulnerable to selling pressure.
Foreign investment flows have also deteriorated.
Estimated outflows through the Hong Kong trading link reached 90 billion yuan ($13.5 billion) during the third quarter, reversing more than half the inflows recorded between April and June. Recently listed companies have faced similar pressure.
Memory-chip manufacturer CXMT has fallen 27% from its post-listing peak, while robotics company Yushu Technology has declined approximately 50% from its August high.
Tech IPO Funding Under Strain
Chinese companies have raised $37 billion through domestic initial public offerings (IPOs) this year, the highest annual proceeds in three years, according to Bloomberg data.
Technology businesses accounted for more than one-third of the funds. The selloff could complicate financing plans for AI companies that favour equity fundraising over debt because of higher international borrowing costs.
Chinese financial regulators reportedly discussed market stabilisation measures on Thursday and urged state-backed investors to accelerate share purchases.
Positive third-quarter earnings surprises could also support sentiment. Nevertheless, valuations remain elevated. The Star50 trades above 40 times forward earnings, compared with approximately 21 times for the Nasdaq 100 and less than five times for South Korea’s Kospi.
Investors remain cautious about whether policy support can restore confidence.