Chinese chip stocks surge on digital currency issuance, Wall Street predicts rapid decline post National Day holiday?

Last week, the People's Bank of China announced a series of stimulus measures to boost the stock market, real estate, and the economy, which led to a surge in market confidence and a significant increase in stock prices.Chinese chip manufacturer Semiconductor Manufacturing International Corporation (SMIC) surged 28% on Monday, gaining nearly $13 billion in market value. SMIC's founder, Richard Chang, is an entrepreneur who started in Taiwan and previously worked at TSMC before establishing SMIC in mainland China.

SMIC was sued by TSMC for intellectual property infringement in 2005 and later settled. The company has faced controversies, including allegations of aiding the Chinese military, leading to it being blacklisted by the U.S. government and subjected to major economic sanctions. Amid the U.S.-China chip war, SMIC's stock price has surged, seen as a confidence indicator for investors following China's support for the semiconductor industry.

With the influx of hot money into the stock market now, whether entering the market is a wise choice is subject to various opinions from investment experts and Wall Street analysts.

AI Chips and Semiconductor Industry: The Panacea for Economic Recovery?

The battlefield of the future world lies in the development of artificial intelligence and chips. China may not be able to save the unfinished buildings, real estate collapse, and unemployment rates, but at least the continuous development and manufacturing of chips are essential to maintain its position in the AI field. According to a report by Bloomberg, the sharp rise of SMIC reflects the return of overall market confidence in the macro market. In the midst of the US-China trade war, the chip market will be a core sector of major competition. Beijing has extended an olive branch to China's semiconductor industry, rescuing the indispensable AI chips for the future economy, which has also boosted other Chinese technology stocks including Hua Hong Semiconductor and Shanghai Fudan Microelectronics, injecting a dose of confidence into the market.

China's chip manufacturing technology has lagged behind the United States for many years. The Beijing government is prepared to continue pouring large sums of money into the semiconductor industry, and will also raise $27 billion to support technology companies including SMIC and Huawei. Investment experts believe that China's focus on AI chips is the elixir for long-term economic recovery.

First Smell the Scent, Then Decide Whether to Act

Despite the strong rebound in the Chinese stock market, other investment experts are not optimistic, believing that the People's Bank of China is currently in a "state of panic." They have shifted from their past conservative and closed-off stance to acknowledging the reality of overall economic decline, following in the footsteps of the United States, which previously implemented extensive monetary measures during the pandemic. This marks an unprecedented bubble in China's financial markets and economy. While it may be seen as a temporary relief fund to save businesses, the implications for the market next year and the long-term effects are incalculable.

Chinese emerging market analyst Wang Yan believes that buying into the Chinese benchmark index can ride the wave of various industries rising together, but it still requires observation of a series of stimulus measures to see if they have a positive impact on the overall economic market.

International Investors Remain Cautious, Local Investors' Confidence Still Lacking

Institutions such as JPMorgan, Invesco, and HSBC have expressed the hope to see tangible evidence of Beijing drawing a big picture with visible funds. Bloomberg analyst Marvin Chen mentioned that their international clients remain skeptical of the recent rebound in Chinese stocks, especially as domestic stock markets are declining more rapidly than foreign stock markets.

As to whether the Chinese market will remain optimistic after the October 11 long holiday, investment experts remain reserved, mainly due to insufficient "trust." Without seeing actual treasury funds entering the market, it is only a temporary comfort. With the real estate industry, which the Chinese trust the most, being affected by Evergrande and Country Garden's collapse, and AI chips being restricted from import by the United States, this wave may be suitable for short-term trading, or it may be more practical to hold onto cash for the upcoming Chinese New Year.

Chinese Stock Market Begins to Decline After the Long Holiday

On October 9, both the Shenzhen and Shanghai stock markets showed a decline, with the Shanghai Composite Index falling by 7%.