China’s STAR 50 has fallen 40% from its July high, wiping out about $480 billion in market value in roughly four months and turning one of the market’s fastest summer rallies into a steep reversal. Dong Baozhen put it bluntly: “The stock market later evolved into a speculative crazy bull. And now we see the bubble bursting.”
The selloff matters because AI stocks now account for 42% of China’s market value and 57% of its trading, which means the damage has spread well beyond a narrow group of chip names. Some of the hardest-hit names are easy to see in the price action: Unitree has lost about half its value since its August debut, MetaX and Moore Threads have roughly halved since July, Zhongji Innolight and Eoptolink trade about 60% below their summer highs, and CXMT fell more than 25% in the month before Oct. 27.
The run-up was not just a retail story. reported that state-backed investors sold into rallies during the climb higher, even as the index’s valuation got stretched. The STAR 50 once traded near 250 times earnings and still sits around 100 after the crash, far above the Nasdaq 100’s roughly 30 times. That gap helps explain why the unwind has been so violent: a market that was priced for a long stretch of perfection suddenly had to relearn what risk looks like.
For U.S. investors, the damage has shown up in funds tied to the theme. KSTR fell 42.63% from the June 30 close through noon Oct. 28 and traded at $18.56, while QQQ slid 1.9% over the same window and remained up 17.6% for the year. KSTR also lost 21.02% in the past month alone and was 0.27% lower for the year at noon Oct. 28, a reminder that the China AI trade has been far more punishing than the broader U.S. market.
There is one reason the story is not as simple as a full wipeout: investors who bought before the summer run-up may still be ahead even after the collapse from July’s peak. But the bigger message is harder to miss. Morgan Stanley sees offshore Chinese stocks falling another 10% to 15% before they bottom, which suggests the Ai Bubble Burst is still working its way through prices rather than ending in a single day.
