HONG KONG, Oct. 26 — Global investors are still debating whether artificial intelligence stocks are in a bubble. In China, that bubble appears to have already burst.

The STAR50 index, which tracks the biggest companies on Shanghai's Nasdaq-style STAR Market and is heavy with AI and semiconductor stocks, has fallen about 40% from its July peak in less than four months. The slide has erased roughly $480 billion in market value, according to Reuters.

The reversal has ended a rally that began about two years ago, when promises of economic stimulus sent Chinese shares soaring. It is also a setback for Beijing's efforts to steer household savings into the stock market to help fund the country's AI ambitions.

The broader pain has spread well beyond the STAR Market. China's CSI 300 index of blue-chip stocks has fallen about 20% from its June high.

From 'slow bull' to burst bubble

Chinese authorities have spent the past two years trying to break the market's long history of booms and busts and cultivate what officials call a "slow bull" market with steady, reliable gains. Regulators cracked down on leverage and high-frequency trading, and state-backed investors sold into rallies to keep gains in check.

Some fund managers say the AI frenzy overwhelmed those efforts.

"The stock market later evolved into a speculative crazy bull," Beijing-based fund manager Dong Baozhen told Reuters. "And now we see the bubble bursting."

Traders said there was no single trigger for the sell-off. They cited stretched valuations, tax bills and the threat that the United States or other countries could ban Chinese........

© International Business Times