(May 22): Chinese regulators are scrutinising recent stock rallies that have been fuelled by artificial intelligence (AI) optimism, asking some listed companies and funds to give more details about their approach to the technology, according to people familiar with the matter.
The Shanghai and Shenzhen stock exchanges have recently asked several listed companies to clarify whether their core businesses have any meaningful link with AI, and whether their disclosures to investors have been clear enough, said the people, who asked not to be identified as the information is private.
Regulators have also sent inquiries to some managers of exchange-traded funds and other funds with heavy exposure to AI-related sectors, asking them to disclose their valuation methodologies and justify the assets they hold, the people said. Regulators have asked these funds how they plan to manage risks stemming from a widening disconnect between elevated valuations and underlying corporate earnings.
The moves underscore Beijing’s unease with some of the wild stock moves that have accompanied the AI boom, which helped push the tech-heavy Star 50 Index to a record high this month. The frenzy has fueled worries of overheating and has lifted the shares even of those companies that appear to have few links to AI.
Representatives of the Shanghai and Shenzhen exchanges didn’t respond to requests for comments.
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State media warning
China’s state media has added to the sense of caution. The Economic Information Daily, administered by the official Xinhua News Agency, this week cautioned against “hidden risks” linked to AI investment, noting the mismatch between sky-high valuations and uncertain fundamentals.
Some stocks have traded at prices hundreds or even thousands times their earnings, but it remains to be seen whether firms can deliver the results to back up these valuations, the report cited an unnamed mutual fund manager as saying. The proliferation of AI meme stocks is also alarming, the report said, adding that regulators have discovered that some of these firms lack substantial AI-related business despite benefitting from the retail-buying frenzy.
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More than 20 companies listed in mainland China and Hong Kong have issued clarification statements related to AI and computing power concepts this month, according to public disclosures. These notices are used to spell out for investors how much the companies’ revenues and growth plans depend on AI.
Among them was winemaker Wei Long Grape Wine Co, whose stock price almost doubled in just seven days of trading this month. The company put out a statement this week denying rumours it was getting an “injection of computing power assets”. Its shares fell by as much as the 10% limit on Friday.
Regulators in China have a track record of closely monitoring the performance of stock markets, sending signals to investors and firms to cool down — or start buying — when prices are swinging too clearly in one direction.
Across the stock market, signs of rising risk appetite have been clear this month, with margin lending, trading volumes and valuations all hitting highs.
Uploaded by Tham Yek Lee
