Chinese AI Stocks Plummet 30% in 2023

The Chinese AI market has seen a significant decline in 2023, with the Hang Seng Tech index falling 30% from the start of the year. The MSCI China index has also seen a 30% decline, with Chinese stocks experiencing a 10-week losing streak. This is a rare occurrence, according to Gavekal’s Louis-Vincent Gave. The decline is attributed to the slowing Chinese economy and deflation, with investors selling Chinese stocks to buy shares in companies that manufacture chips in South Korea and Taiwan.

The free models offered by Chinese companies have led to a price war in China and the US, raising concerns about the profitability of the AI sector. The US-based Anthropic has seen its stock rise, while Chinese companies Z.ai and MiniMax have lost value after initial gains.

Investors are advised to consider Chinese state bonds as an alternative investment option, as they have performed well since 2020 and are less susceptible to market fluctuations. Foreign investors hold less than 5% of Chinese state bonds, which are largely held by Chinese investors and are subject to strict government control.