Deleveraging clouds China’s AI trade as rising US Treasury yields, inflation fears persist

The deleveraging in China's stock market, particularly within the AI trade, points to a broader caution among investors. The outstanding balance of stocks bought with borrowed money has dropped to US$390.1 billion, a significant decrease from its June peak. This unwinding of positions is not merely a reaction to rising US Treasury yields and inflation fears; it also reflects a lack of broad stimulus from Beijing, even as economic data underperformed in July. For Asia's tech sector, especially in China, this sustained deleveraging suggests that a strong rebound in AI-related stocks may remain elusive. The Star Market 50 index, central to China's AI ambitions, is approaching its July lows, indicating that investor sentiment has not recovered. The key thing to watch is whether Beijing will eventually introduce a more substantial stimulus to counter the subdued risk appetite, which could provide a much-needed boost to the AI trade.