Global AI trade revival brightens outlook for Chinese tech stocks after record sell-offs

Chinese technology stocks have shown signs of recovery after a record sell-off in July, as global interest in the artificial intelligence trade picks up once more. The Star Market 50 Index, featuring key chip manufacturing companies on the Shanghai Stock Exchange, is poised to close the week up around 6 percent, following its 26 percent slump last month.

This partial rebound coincides with renewed enthusiasm for AI shares in the United States, pushing the S&P 500 and Dow Jones Industrial Average to new highs this week. The resurgence of investor sentiment in Chinese tech stocks could be further fueled by the correlation between the two markets.

Analysts attribute the positive outlook to easing concerns over Federal Reserve tightening, as well as the de-escalation of tensions in the Middle East, which has led to lower oil prices. Corporate earnings reports have also demonstrated that demand for AI remains robust. Song Yiwei, an analyst at Bohai Securities, stated that Chinese stocks are entering a rebuilding confidence stage, with the market expected to reach a bottom as interim earnings reports provide fundamental support for fund reallocation.

The sell-off in Chinese tech stocks was preceded by a more than 60 percent surge in the Star Market 50 this year, with leveraged traders driving bets to record highs to maximize exposure to AI plays. As the sell-off intensified, Beijing's securities regulator announced stability measures, while state-backed investment vehicles poured at least 60 billion yuan directly into the market.

Lower Brent oil prices, which have dropped nearly 20 percent over the past two weeks following Washington's decision to avoid attacking Iran and pursue a diplomatic solution, have also helped alleviate fears of monetary tightening. Declining US Treasury yields have further eased market concerns about higher capital costs impacting high-growth tech valuations. Strong corporate results, including evidence of successful capital spending by major cloud computing providers, have further bolstered the market's recovery.

US investment banks, such as Lombard Odier and Morgan Stanley, have maintained a positive long-term outlook for China's onshore, yuan-denominated stocks, particularly in the tech sector. However, analysts at Morgan Stanley have suggested that Hong Kong-listed stocks may be preferable in the near term, as Chinese hyperscalers listed in the city could benefit from expanding AI investments into data centers and cloud services.