Chinese stock market enters bear territory! CSI 300 index crashes 20% from June peak

ETMarkets.com

The index tracks the 300 largest stocks listed on China’s Shanghai and Shenzhen exchanges. It has declined for 10 consecutive weeks, losing nearly 3% so far this week. On Thursday, the index fell more than 1%.

Why is China's stock market crashing?

Beijing set October 22 as the deadline for wealthy individuals to declare and pay offshore trust income, which may have prompted some to offload stocks to collect cash, Reuters reported earlier. "Rather than seeking to boost near-term growth, the government's focus remains on technological advancement, industrial upgrading and greater self-sufficiency," Reuters cited Sophie Altermatt, an economist at Julius Baer, as saying.

Additionally, more restrictive taxation policies have also put pressure on stocks in the near-term, the report cited market participants as saying. Meanwhile, the world’s second-largest economy posted its slowest growth in over three years in the second quarter, pressured by a multiyear slowdown in the property sector and extended weakness in consumer demand, further dampening sentiment on the market. Slow earnings growth is also spooking investors.

Also read | Market sell-off deepens as midcaps enter correction zone

Shaun Rein, managing director at China Market Research Group, told CNBC that he expects further selling pressure in the Chinese market as geopolitical uncertainty, concerns over an AI bubble and deteriorating consumer confidence weigh on investor sentiment. He further said that the country’s large base of retail investors could also exacerbate market volatility.

Can Chinese stock market rebound?

However, Rein noted the sell-off has been excessive, pointing to resilient exports and signs of a recovery in property prices in China’s largest cities. “It is a crisis of confidence right now, not a crisis in the economy,” the analyst told CNBC, predicting a strong rebound in Chinese equities in 2027.

AI bubble worries have been spooking investors not only on China but Korea’s Kospi as well, which has already visited the bear market multiple times this year. Michael Burry, popularly known as the ‘Big Short’ investor and famous for correctly predicting the 2008 housing bubble, suggested the bubble around artificial intelligence frenzy bubble could pop even before what he previously expected.

Michael Burry cited recent research from Ares Management that said it would take only a season in which AI revenue disappoints the massive capital expenditure that hyperscalers are putting behind it. “In that scenario, a handful of boards, predisposed to redeploy capital toward the highest-conviction bet, would simply need to conclude that the highest-conviction bet has shifted,” the report said.

Also read | AI bubble to burst sooner than expected? Michael Burry believes it would take only one season of revenue disappointment

This comes after Burry said in August that the AI crash could begin from 2028. However, his latest comments imply that he expects this to happen sooner. Recently, he said the President Donald Trump-led US administration cannot afford to let the AI boom fail. He explained that AI infrastructure buildout has become a critical support for the US economy, keeping very little room for the Trump administration to let the ongoing AI boom weaken, Stockwits reported. Notably, Burry has been shorting AI-linked stocks and warning investors of a sharp selloff ahead.