China's AI Stock Bubble Has Burst, Report Says

A new report claims that China's AI stock boom has already come to an end. AI, short for artificial intelligence, has driven huge excitement in global stock markets in recent years. According to the report, this excitement in China has turned into a bubble that has now burst, meaning prices that rose quickly are starting to fall back down.

The report warns that Chinese equities, meaning company shares traded on the stock market, could now face a prolonged downturn. This means share prices may keep falling for an extended period, rather than recovering quickly.

One major reason behind this shift is falling earnings forecasts. These forecasts are predictions of how much profit companies will make in the future. When analysts lower their earnings forecasts, it often signals that they expect weaker business performance ahead, which can push investors to sell shares.

Meanwhile, so-called National Team funds have been buying up Chinese shares in large amounts. This term refers to state-linked investment funds in China that are believed to step in and support the stock market during times of stress. These funds have just recorded their biggest inflows, or incoming investment money, since the earlier trade war period.

The trade war refers to a period of serious trade tensions between China and other major economies, which previously caused sharp drops in Chinese markets. The fact that National Team funds are now investing so heavily suggests that authorities may be trying to stabilise share prices again.

Together, these signals point to a difficult period for Chinese AI-related stocks, even as state support attempts to cushion the broader market from a steeper rout, or sudden sharp decline.