Chinese stocks rebound from 14-month lows as AI firms unveil stellar forecasts

China's stock market experienced a rebound on Friday, recovering from its 14-month lows the previous day. This positive movement in the Shanghai Composite Index marked a stark contrast to the worst week for Chinese stocks in three months. The market's turnaround was primarily driven by AI-related companies unveiling share buyback plans or projecting impressive growth forecasts.

Additionally, global equities recovered after a sharp sell-off in AI stocks, triggered by concerns over increased spending on AI infrastructure amid rising borrowing costs. The sentiment improvement extended to neighboring countries like South Korea and Japan, as their respective stock markets rebounded following a Wall Street recovery overnight.

Despite the upward trend, China's CSI300 Index is still on track for a significant decline of around 3% for the week, marking the worst weekly performance since July. The index is also expected to enter a 10-week losing streak. Tech shares managed to regain some of their recent losses, buoyed by announcements from over a dozen AI supply chain companies, including Eoptolink and Piotech, as well as chipmakers MetaX Integrated Circuits and Hygon Information Technology.

These companies revealed share buyback or stock purchase plans, signaling robust growth prospects. However, sentiment remains restrained due to global liquidity challenges, as highlighted in a Morgan Stanley report on Friday. Weak domestic demand and less supportive liquidity and flow conditions continue to constrain index upside.

US Federal Reserve chair Kevin Warsh expressed optimism about the impact of AI on the real economy, although he cautioned that its immediate effect on employment remains uncertain. He also emphasized the need to consider financial stability risks as traders closely monitor the Fed's monetary policy trajectory. In China's stock market gains, real estate, gold, and defense stocks played a significant role, all rising by more than 3%. Meanwhile, biotech and property shares in Hong Kong experienced a notable increase.