In China, the AI bubble has already burst

Key Points:

• Chinese tech stocks have experienced a significant crash due to concerns over AI demand and export restrictions, with valuations collapsing amid fears of US and other nations banning Chinese equipment in data centers.
• AI-related stocks now constitute 42% of China's market capitalization and 57% of turnover in mainland and Hong Kong-listed shares, causing widespread losses among retail investors.
• The STAR50 index remains highly overvalued at around 100 times trailing earnings, compared to the Nasdaq 100's multiple of 30, prompting worries that the selloff may worsen before recovery.
• Regulatory efforts to curb market speculation, including cracking down on leverage and high-frequency trading, have contributed to dampening volatility, while state-backed investors have sold into rallies to control gains.
• Despite the selloff, some investors and fund managers see long-term value and buying opportunities in the Chinese tech sector, though many remain cautious and look to other sectors or lower valuations before re-entering.