The STAR50 index, which tracks Chinese companies focused on artificial intelligence and semiconductors, has dropped roughly 40% in less than four months, Reuters reported. Firms included in the index have lost about $480 billion in market value, equivalent to nearly 160,000 billion forints.
Two-year rally comes to an end
The sell-off marks the end of an approximately two-year upward run that was fueled by state stimulus measures. The Chinese government had sought to build a market segment that would offer steady returns and slow growth; that objective has not been met as prices plunged.
No single clear trigger identified
Traders say there is no single clearly identifiable cause for the wave of selling. Contributing factors cited include elevated valuations and tax burdens. Another source of concern is the prospect that the United States or other countries might ban the use of Chinese-made equipment in data centres, a move that would directly affect the sector.
Sector concentration and retail exposure
AI-related stocks now account for about 42% of the total market capitalisation of the Chinese stock market. The sector’s strong popularity among retail investors means the recent decline has resulted in substantial losses for many individual holders.
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Lead image: AFP / Zheng Changhao / XINHUA / Xinhua via AFP.
