China’s stock market benchmarks tumbled over 3% on Friday, posting their biggest weekly drop in more than two years, as chipmaker CXMT‘s $8.6 billion initial public offering stirred fears of liquidity stress in a market already creaking under stretched tech valuations.
A global sell-off in shares of AI-related companies also weighed on sentiment.
Investors were disappointed too by the World Artificial Intelligence Conference, which kicked off in Shanghai on Friday, where Chinese President Xi Jinping focused on AI safety and governance rather than new investment initiatives in his opening speech.
CXMT‘s IPO “is sucking in too much money, and investors are voting with their feet,” said Stephen Huang, a Shanghai-based hedge fund manager. “For tech stocks, it’s a disaster.”
UBS said in a note to clients that Xi’s speech focused on risk management, “disappointing investors hoping for stronger policy support”.
China’s large-cap index CSI300 slumped nearly 4%, wiping out this year’s gains. The Shanghai Composite Index declined 3.1% to a 10-month low. Both gauges registered their worst week since late December 2024.
China’s tech-focused STAR Market posted a record weekly loss and Hong Kong’s Hang Seng Index lost roughly 2%.
Investor caution was obvious in the subscriptions for newly issued shares of Chinese memory chip giant CXMT.
Retail subscriptions exceeded the CXMT shares available by more than 200 times, but the over-subscription rate of Asia’s biggest IPO so far this year was much lower than most Chinese IPOs.
“The AI industry keeps expanding, but it does not mean AI stocks will keep rising, especially when the sector is overcrowded,” said Wen Xunneng, Shanghai-based CEO of Zhu Liu Asset Management.
Yuan Yuwei, hedge fund manager at Trinity Synergy Investments, said that CXMT‘s IPO helped prompt a sell-off in the shares of its rivals Samsung and SK Hynix. That, in turn, prompted selling in AI stocks in the U.S., and then weakened the narrative in China.
“It’s a vicious circle,” Yuan said, adding the fundamental issue was that “there are big bubbles in some China stocks.”
Chinese tech stocks suffered a sharp sell-off, as investors eyed a slew of upcoming mega-IPOs by companies such as robot maker Unitree and chip-making giant Yangtze Memory Technologies, potentially sapping market liquidity.
The STAR 50 Index tumbled 7% and was down 17% for the week in a record loss. Still, the index is up 28% for the year, and trades at over 100 times earnings.
The CSI AI Index, the CSI Integrated Circuits Index and the STAR Chip Index all slumped more than 8%.
In Hong Kong, AI and chipmaking stocks were also among the biggest decliners.
Reuters
