Chinese chip stocks plunge as investors rotate away from tech

(July 30): Chinese tech stocks plunged on Thursday, led by high-flying semiconductor names, as concerns over stretched valuations and crowded positioning intensified a rotation out of one of this year’s best-performing sectors.

The STAR 50 Index tumbled more than 6% to its lowest since April 30. Shares of Yuanjie Semiconductor Technology Co and Hua Hong Grace Semiconductor Ltd slumped at least 14% each. The tech-heavy gauge — on track for its sixth decline in seven sessions — has lost nearly 29% in July after surging about 75% in the previous three months.

Shares of optical-component makers such as Eoptolink Technology Inc and Zhongji Innolight Co — another hot segment of the market — plummeted more than 15% each, dragging the broader CSI 300 Index down more than 2%. Down almost 10% in July, the onshore benchmark is on course for its worst performance since January 2016.

Meanwhile, subgauges of consumer staples and utilities rose 2.8% and 1%, respectively, leading gains among sectoral groups on the CSI 300 on Thursday.

The moves in China come as the global AI trade has faltered in recent weeks. Beyond concerns about valuations and positioning, investors have also grown wary of intensifying competition, circular deals and mounting signs that companies may be overinvesting in AI infrastructure and capacity.

“The weakness in Chinese chip stocks looks more like a structural rotation, as funds shift into consumer, property and dividend plays,” said Xiang Xiaotian, director at Shanghai Chengzhou Investment Management. It also “reflects a broader deleveraging of AI trades globally. After years of gains, investors sitting on sizable profits and leverage are locking in gains and cutting positions,” he added.

The latest slide in Chinese stocks is also likely to pose a fresh challenge to authorities, who already rolled out a series of measures this month to stem a tech-led sell-off, including mobilising state-backed funds, regulators, insurers and asset managers.

Investors are looking to the upcoming Politburo meeting for fresh catalysts, though expectations are more for authorities to announce targeted measures to bolster stability rather than a sweeping stimulus package.

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