Dragon trails on AI bullet train as stocks shed most since 2001

After a banner year for Chinese stocks on the back of AI advances, 2026 is not going well. The MSCI China Index has tumbled 15%, the worst performance globally after Indonesia. The Chinese gauge last week traded at the lowest level relative to MSCI's world index since the immediate aftermath of the Sept. 11, 2001 attacks, when US markets closed for four days. The two biggest weightings - tech firms Tencent and Alibaba - have plunged more than 29% to wipe out a combined $337 billion.

The poor performance is a surprise to many. At the start of the year, Goldman Sachs Group Inc. was predicting a 20% rally for the MSCI China, which had just posted its best advance since 2017.

Lombard Odier raised their recommendation on the country's equities to "preferred," expecting earnings improvement.

Factory activity expands in June

China's factory activity returned to expansion in June, driven by demand for chips, computers and other AI-related products, as robust export orders and front-loading to the United States to get ahead of tariffs offset weakness elsewhere in the economy.

The data suggest global AI investment is providing an important cushion for manufacturers in China's $20 trillion economy.