China's AI bubble burst and retail investors were seriously injured! Kechuang 50 plunged 40% in four months, with nearly 16 trillion yuan in market value evaporated

Yushu Technology’s share price has halved since its listing in August. (Reuters)

China's STAR50 index, which focuses on artificial intelligence (AI) and semiconductor stocks, plummeted 40% in less than four months, and its market value evaporated by US$480 billion (NT$15.64 trillion). Reuters reported that this shock was a blow to China's efforts to encourage people to invest their savings in the stock market to provide funding for AI development. It also reflected that China's AI bubble has burst.

The report said that Science and Technology 50's plunge also put the brakes on China's two-year stock market rise, which had soared after Beijing's economic stimulus promises boosted stock prices. China's blue-chip CSI 300 Index has fallen about 20% from its peak in June, once falling into a bear market. Dong Baozhen, a well-known fund manager in Beijing, said, "The stock market then turned into a speculative frenzy, and now we are witnessing the bubble bursting."

China's AI investment boom has changed the structure of the stock market. According to Goldman Sachs statistics, since the DeepSeek moment at the beginning of last year, AI stocks have accounted for 42% of the market value of China's A-shares and Hong Kong's H-shares, and their trading volume has accounted for 57%. In the Chinese market, which is dominated by small retail investors, almost no one is immune to the impact of the bursting of the AI ​​bubble.

When robotics giant Yushu Technology went public, it was oversubscribed 8,000 times by retail investors. However, its share price has halved since its listing in August. The market value of memory giant Changxin Memory has shrunk by more than a quarter in the past month.

On their first day of listing last year, the share prices of chip manufacturers Muxi Integrated Circuit and Moore Thread soared 700% and 400% respectively. However, their share prices have plummeted 50% since July. Chen Wensheng, an investor who runs a small company in China's Hainan province, said he felt official support for technology companies such as Yushu, which led him to buy the shares when the stock market surged. But now he and his friends are suffering losses. Investors in related companies include state-owned funds.

Investors, disillusioned with Beijing-backed investment themes, have turned to defensive assets, slowing the pace of equity financing for technology companies. Hong Hao, managing partner and chief investment officer of Lotus Asset Management in Hong Kong, said the current situation is causing many companies to stop promoting listing plans.

The investment frenzy and its aftermath contrast sharply with Chinese authorities' efforts to curb market volatility and boost returns by cracking down on leverage and high-frequency trading, with China's state-owned investment institutions selling shares when stocks rise to try to control the rally.

Leo Wang, a partner at Beijing Qianchuang Capital, pointed out that “over-emphasis on ‘tech content’, that is, the market capitalization weight of technology companies in major indexes, has led to deviant and even distorted capital behavior; this has led to serious bubbles in some industries, while other industries have faced serious capital losses.”