Dragon enters bear cave with $2.4 trillion lost since May peak

Chinese stocks were dragged into a bear market, with $2.4 trillion lost since a peak in May, as a protracted slump in consumption and mounting doubts over the profitability of artificial intelligence companies turn them into one of the world's worst performers.

The CSI 300 Index closed 1.8% lower on Thursday, bringing its total losses from a high in June to 20%. Gauges for major Chinese companies and tech firms also plunged in Hong Kong, with a monthslong selloff showing few signs of abating.

The declines mark a sharp reversal from the stimulus-driven rally sparked in late 2024 that then gained momentum from AI bets before succumbing to a global selloff in technology names. While policymakers have stepped up market supportive measures, the lack of a broad-based spending package and economic growth that's barely meeting national targets have disappointed investors. Some analysts say the malaise may well extend into next year.


"This slide is too rapid and may just herald further declines ahead," said Fu Zhifeng, chief investment officer at Shanghai Chengzhou Investment Management. "If there is no turnaround in market overhangs, including weak domestic demand, uncertainty over how to justify hefty AI spending and European and US government bond yields, investors are unlikely to change their trading strategies anytime soon."

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The rout in Chinese onshore shares has erased $2.4 trillion in market value from a recent peak, according to data compiled by Bloomberg. The Hang Seng China Enterprises Index and the CSI 300 gauge both rank among the worst-performing major equity indexes globally this year, with losses of more than 10% each, whereas most major peers have gained.

The Hang Seng Tech Index is undergoing a brutal stretch, down 31% for the year as investors question whether hyperscalers' massive spending will generate sufficient returns. The gauge is close to erasing all of the gains it has made since Beijing's sweeping stimulus package in September 2024.

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Early optimism over Chinese technological breakthroughs inspired by DeepSeek, and strong state support drove tech valuations to lofty levels, leaving the sector vulnerable as sentiment turned. Startup favorites and China's biggest tech firms such as Alibaba Group Holding Ltd. have since emerged as among the biggest losers as scrutiny over future AI demand and earnings prospects intensifies. "Although Chinese tech trades at a significant discount to its global peers, weak earnings growth and potential earnings dilution mean the shares could stay rangebound or drift lower without a meaningful catalyst," said Jeremy Tan, chief executive officer at Tiger Fund Management in Singapore.