Key Highlights

  • Shanghai's Star 50 index has returned 29 percent this year, far outperforming the broader CSI 300's 0.9 percent gain and Hong Kong's Hang Seng, which is down 1.5 percent
  • The Star 50 index now trades at a price-to-earnings ratio above 150, compared with 35 for the Nasdaq 100 in the US
  • The upcoming listing of humanoid robotics group Unitree attracted more than 5,500 times the available retail investor allotment
  • China's major exchanges have relaxed listing requirements over the past year for companies working on strategically important but unprofitable technologies

AI Enthusiasm and State Backing Drive Chinese Tech Valuations Sharply Higher

Backing from Beijing combined with intense domestic investor enthusiasm has pushed valuations of Chinese technology stocks far above those of their US counterparts, as the country's AI sector emerges as a serious challenger to Silicon Valley's global dominance. Shanghai's Star 50 index, which tracks the 50 largest and most liquid companies on the tech-focused Star board, has returned 29 percent this year, comfortably outperforming the broader CSI 300's 0.9 percent gain and Hong Kong's Hang Seng index, which is down 1.5 percent.

The index is trading near its most expensive levels since launching in 2020. Even after a recent sell-off, the Star 50's overall price-to-earnings ratio stands above 150, well ahead of the Nasdaq 100's 35 in the US. A portfolio manager at an emerging markets Investment firm said the elevated valuations reflect domestic investors making a broader bet on China's ability to catch up with deep-pocketed US AI rivals, following a painful housing market downturn that has left many searching for alternative places to invest.

AI Advances and Blockbuster Listings Fuel Investor Enthusiasm

The launch of a major new Chinese AI model rivaling those from leading US labs, alongside the listing of a homegrown chipmaker that overtook a major Chinese internet company as the country's most valuable, has underscored China's rapid AI advances. The upcoming listing of humanoid robotics group Unitree attracted more than 5,500 times the available allotment for retail investors, according to reports, illustrating the scale of enthusiasm currently gripping China's capital markets.

An emerging markets portfolio manager at another investment firm said there is a significant narrowing in the perceived AI Leadership gap between China and the rest of the world. Beijing's "national team" of state-backed funds has separately purchased equities following a global chipmaker sell-off earlier this summer that hit Chinese stocks, with the country's urgent push for semiconductor self-sufficiency amid Western export restrictions concentrating much of the elevated valuation activity in chipmaking specifically, according to a regional Equity strategist.

Relaxed Listing Rules Have Fueled the Rally Further

Over the past year, China's major exchanges have relaxed listing requirements for companies working on strategically important but currently unprofitable technologies. More than half of this year's listings in mainland China have been in technology or industrial sectors, while in Hong Kong the proportion is even higher, at 77 percent. Companies listed in Shanghai this year carry an average price-to-earnings ratio of 268 and a price-to-sales ratio of 43, compared with 67 and 22, respectively, for companies that listed the year prior.

The rally comes amid pronounced weakness in China's broader economy, presenting a contradictory picture of technological ambition alongside economic fragility. Weak domestic consumer Demand has hammered stocks linked to Chinese consumer sentiment, with two major internet companies' shares down sharply this year. A senior strategist at a European bank noted that Chinese equity markets lack the same depth of longer-term institutional investors seen in the US, with shorter-term-focused mutual funds contributing to greater market crowding around popular themes such as AI.