How sell-off at flashy AI-focused US hedge fund is a wake-up call for Chinese investors
Chinese tech investors are hearing warning bells after volatility in US tech stocks forced a fast-rising Wall Street hedge fund to clear its stock portfolio at a steep discount within a few days. “Don’t use leverage! Don’t use leverage! Don’t use leverage!” Shanghai-based public-markets analyst Harry Shen repeated to the South China Morning Post in an interview on Friday. Another warning came…
Chinese tech investors are receiving cautionary signals following a recent sell-off at the AI-focused American hedge fund Situational Awareness. The fund, which specialized in AI stocks, was forced to offload large portions of its portfolio at a significant loss within days due to market volatility. Analysts emphasized the importance of avoiding leverage and not chasing short-term trends, as market conditions can quickly turn against investors.
Shanghai-based analyst Harry Shen warned against using leverage, while Shanghai-based veteran Michael Zhang stressed the dangers of trading with borrowed money. Both analysts argued that any disruptions in the investment process could force investors to sell prematurely, potentially resulting in substantial losses.
Situational Awareness, founded in 2024, had made aggressive bets on AI-related companies, including memory-chip manufacturers SK Hynix and SanDisk, as well as AI cloud-computing provider Nebius Group. The fund's portfolio value dropped by 67 percent in July alone, according to The Wall Street Journal. Shares of affected companies experienced sharp declines over the past month, with SK Hynix falling more than 10 percent and SanDisk and Nebius losing over 30 percent.
Despite the recent setbacks, some investors remain optimistic about the long-term potential of AI technology. Shanghai investor Zhang, who had doubled down on AI and semiconductor stocks, acknowledged his losses but expressed confidence in the long-term prospects of AI. However, he acknowledged the challenges posed by market dynamics, such as the high margin interest rates and the need to constantly monitor the performance of his investments.
Analysts have been divided on whether the AI market is currently experiencing a bubble. A February survey by Bank of America found that 23 percent of investment-grade clients identified the risk of an AI bubble as their top concern, surpassing geopolitical issues. Chinese economist Justin Lin Yifu warned last year that the US AI bubble would burst within five years, comparing the potential global shock to the 2008 financial crisis.
However, some experts argue that the fundamental strengths of AI technology make it less susceptible to a sudden collapse.
Written by urgent.news from SCMP Tech's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
