Chat GPT Stirs Investment Rush In China's Tech Stocks as FOMO Sets In

Investors are pouring money into China's tech, media, and telecom stocks, with speculative wagers on chatbot development pushing out other sectors in a scenario that contrasts sharply with global caution.

Mainland China's computer, communications equipment, and media indices have risen between 29% and 35% this year, outpacing the benchmark CSI 300 Index's growth of 3.5%.

According to China Merchants Securities data, turnover in tech, media, and telecom (TMT) companies accounted for more than 40% of total market transaction on various days, including three last week, for a record concentration of trading volume.

Investors say they're purchasing in the hopes that bots like Microsoft's ChatGPT will revolutionise the industry, save costs, and open up new avenues for development.

Nevertheless, once the fear of missing out comes in, analysts are concerned that the surge may become unstable, and there are already evidence that it is distorting markets.

"In the stockmarket, AI will be an epic opportunity," said Niu Chunbao, a fund manager at Wanji Asset Management who worried he was missing the rally and bought AI stocks in recent weeks, after cutting exposure to new energy in February.

Statistics collated by Cinda Securities revealed that exchange-traded funds are also receiving capital, with TMT-focused funds seeing net inflows of 4 billion yuan ($580 million) during the last three months, among the highest such purchases in any sector.

Yet, as broader market gains stall and questions about China's recovery from the COVID-19 outbreak swirl, the frenzy is sucking up enough money to pose wider problems.

The trend has not slowed despite a February warning in official media.

"The siphon effect of the TMT sector has become increasingly obvious," said Guosheng Securities analysts in a note, while others pointed to fundamentals that appear shaky.

Despite posting losses since 2017, the share price of chipmaker Cambricon Technologies Corp has tripled, pushing its market value beyond $10 billion.

The stock of Beijing Haitian Ruisheng Science Technology has doubled, despite the fact that the AI training data supplier has warned investors that it does not expect significant order growth from AI-generated content (AIGC).

"The AIGC trade is overheated," said Yao Pei, chief strategist at Hua Chuang Securities.

Yet, with China's government encouraging technological growth, others believe that winners will emerge eventually, even if there is a washout in the market first.

"Most of the firms that soared during the craze are garbage stocks with little long-term value, and the investments are nothing more than Ponzi scams," said Yuan Yuwei, fund manager at Water Wisdom Asset Management.

"The garbage stocks will undoubtedly fall, and then we will see true industry leaders emerge."