Chinese regulatory authorities intervene to cool down the fiery AI concept

Chinese regulatory authorities have begun to scrutinize stock price movements driven by AI sentiment. According to Bloomberg, the Shanghai and Shenzhen exchanges have recently sent inquiries to several listed companies, demanding clarification on whether their core businesses have a substantial connection with AI and if their information disclosure to investors is sufficiently clear.

Regulators are also targeting related ETFs. Sources say that supervisory bodies have inquired with several fund managers heavily invested in the AI concept, requesting the disclosure of valuation methodologies, clarification on their holding rationale, and explanations on how they manage the risks posed by the growing divergence between high valuations and actual corporate earnings.

Official media is also sending out warning signals. The Economic Information Daily, part of Xinhua News Agency, published an article this week noting the presence of "hidden risks" in the AI investment sector, citing an unnamed fund manager who stated that some stocks have price-to-earnings ratios in the hundreds or even thousands, with the companies' ability to deliver corresponding performance still uncertain. The article also points out that regulators have identified several companies benefiting from retail investors' buying that do not actually possess substantial AI operations.

More than 20 companies listed in mainland China and Hong Kong have issued clarifying announcements related to AI and computational power concepts this month. A typical case is Weilong Shares, whose stock price nearly doubled in seven trading days this month, then was forced to issue a statement denying rumors of "injecting computational power assets," resulting in an immediate price halt.

The background for this regulatory action is that the AI craze has propelled the SSE Science and Technology Innovation Index (STI) to a record high this month, with financing balances, trading volumes, and valuations rising in tandem, and signs of increasing market risk appetite are quite apparent.

For investors, the signal sent by this regulatory inquiry is noteworthy: Chinese regulators have always been highly sensitive to one-sided market trends, and this action suggests that the "indiscriminate rise" stage of AI-related stocks may be drawing to a close. The market will subsequently differentiate between companies with real AI business support and those merely piggybacking on the trend. Valuation inquiries at the ETF level may also pressure the capital flow of related passive products.