China Reins In IPOs, Suspends Shareholder Sales as AI Selloff Deepens

China has told its biggest securities firms and banks to throttle back their work on initial public offerings and concentrate on boosting the struggling stock market, according to the Wall Street Journal, which cited people familiar with the matter.

Separately, City A.M. reported, citing the Financial Times, that the China Securities Regulatory Commission has held meetings with investment banks over the past few days about holding fire on IPOs, and that large sales by existing shareholders have been temporarily suspended until markets recover. Zero Hedge characterized the moves as the latest sign of coordinated efforts by authorities to stabilize equity market weakness.

The intervention follows the worst month for mainland China's benchmark index in more than a decade. The CSI 300 fell 8.5 percent in October, taking its losses for the year to 15 percent, according to City A.M. Hong Kong's Hang Seng has tumbled 10.6 percent since January, while the Shanghai Composite has lost 10.3 percent. On Tuesday, the CSI 300 slipped a further 0.2 percent.

Chinese equities have been caught in a prolonged downturn since the summer as investors' skepticism over the AI boom gained speed. The selloff has crushed the region's marquee tech listings. Unitree Robotics, whose blockbuster summer debut initially soared, has seen its share price plummet more than 26 percent. AI firm MetaX has tumbled 31.4 percent, and transceiver supplier Eoptolink has fallen 43.1 percent, City A.M. reported.

The supply-side tactics echo emergency measures used elsewhere in Asia. South Korea's blue-chip index has triggered 55 trading halts this year to date, temporarily cutting off investor access during volatile sessions, and the Tokyo Stock Exchange has also green-lit trading halts over the course of the year.

Regional markets remain fragile. South Korea's blue-chip index fell 3.5 percent on Tuesday, giving back all of Monday's gains, led by tech heavyweights Samsung Electronics and SK Hynix, which lost 4.1 percent and 1.1 percent respectively.

The fallout has reached Wall Street, where Monday's rally was reversed after Apple's earnings, with the company warning investors that higher prices will eat into profit margins. The Nasdaq Composite closed down 1.4 percent and the S&P 500 fell 0.5 percent. Stocks recovered some ground at Tuesday's open, with the index up 2.2 percent, but analysts are awaiting the fallout of Tuesday's US midterms, with the performance of Democrats in particular expected to weigh on AI stocks.

Analysts questioned whether restricting supply will do more than buy time. "While the measures may help shore up sentiment in the short term, they don't tackle the deeper concerns about the economic outlook or whether the huge sums being poured into AI will generate the returns investors are banking on," Susannah Streeter, chief investment strategist at Wealth Club, told City A.M. "Trying to calm nerves by artificially restricting the supply of shares may buy some time, but it's unlikely to persuade investors that the worst of the sell-off is over."

"Pretty much anything tech-momentum-AI related remains under pressure with an abortive attempt at a rally yesterday on Wall Street, a signal that buyers are not rushing to buy the dip just yet," said Neil Wilson, investor strategist at Saxo.

Abbas Owainati, head of portfolio management and asset allocation at Raymond James, described a "have your cake and eat it" dilemma for investors: mounting concern over the rapid build-out of data centres, including electricity costs, water use and pressure on local infrastructure, set against political support across the US divide for maintaining leadership in AI, particularly given the strategic competition with China.