China sees signs of AI bubble deflating as STAR50 index falls 40%
The STAR50 index, which tracks the 50 largest technology companies in China, has fallen 40% over four months. Analysts link the decline to concerns about a bubble around companies working with artificial intelligence (AI).
Abdulrahman Sadikhli2 min read
Analysts' concerns about a global market bubble forming around companies linked to artificial intelligence (AI) have begun to be confirmed in China. Over four months, the STAR50 index fell 40%.
The index covers the 50 largest companies in the technology sector. According to the source, they have already lost $480 billion in market capitalisation after nearly two years of uninterrupted growth in quotations. Against this backdrop, the benchmark CSI300 index fell by roughly 20% from its June peaks.
A financial bubble is usually described as rapid growth in the capitalisation of a company or group of companies, one that is not supported by real cash flows and prospects. Such growth typically ends with a collapse in shares of participants and a fall across the entire stock market.
Sell-off hits leaders and new listings
Dun Baozhen, head of the Beijing-based fund, believes the stock market has become overly swayed by speculation on growth. In his words, everyone now sees it "as a bubble bursting". In his assessment, there was no specific cause for the sell-off. Investors realised that the growth in quotations is not supported by real financial results and prospects for the technologies.
Shares of Unitree, a robot manufacturer, have doubled in price since trading began in August. Shares of the chipmaker CXMT have lost more than a quarter of their capitalisation over the month. Shares of the chip designers MetaX Integrated Circuits and Moore Threads Technology, as well as the optical component makers Zhongji Innolight and Eoptolink Technology, have more than doubled in price.
Valuations and comparison with the US
Earlier, Ray Dalio, founder of the large American hedge fund Bridgewater, described the growth in the value of AI-linked companies as a "classic bubble" that is close to bursting. According to him, the market is in the part of the cycle that precedes a crash. "I think we are close to that," he said.
In the US, the decline in shares of AI race participants has so far looked not very serious. As noted in the material, the revaluation of sector companies in China was noticeably higher. Therefore, even after the sell-off, Chinese companies remain expensive on financial metrics compared with American ones.
Source: lenta.ru
