China Hardware Stocks Set for Worst Quarter as AI Rally Unravels

Chinese technology hardware shares are on track for their poorest quarterly performance, following a brutal July selloff triggered by concerns over AI firms’ ability to justify stretched valuations and high spending.

The tech-heavy Star 50 Index and ChiNext gauge have each suffered a decline of around 30% since the end of June. AI-related firms Biwin Storage Technology Co. and Moore Threads Technology Co. are among the biggest losers, tumbling at least 40% each.

The poor showing follows a global rout two months ago as investors questioned whether demand would be strong enough for AI companies to monetize the revolutionary technology. Also pressuring the Chinese firms were fierce domestic competition and worries about US restrictions on imports.

“These Chinese A-share tech firms have sky-high valuations and are mostly loss-making, so the pullback tends to be sharper,” said Vey-Sern Ling, a managing director at Union Bancaire Privée. “For China there’s also geopolitical overhang like the US transceiver bill.”

While Beijing took some steps to restore investor confidence after the initial selloff, the market has struggled to stage a meaningful rebound. The Chinese central bank’s latest move to encourage lending to targeted sectors including infrastructure and technology has also failed to impress investors.

The onshore benchmark CSI 300 Index has fallen about 2% this week ahead of a public holiday, taking its run of losses to eight weeks. That’s the longest losing streak since 2012.