What Does China’s AI Turmoil Mean for America?
We’re seeing a lot of wild headlines about China recently. There’s noise about their AI bubble bursting, and baseless claims that China is liquidating all of its US Treasuries. It’s sending spectators down rabbit holes. Many predict these events are an indicator of what’s in store for America.
As usual, the truth is somewhere in the middle. China is, in fact, experiencing some notable activity. And as with any significant market around the world, it’s worth paying attention to, and contemplating how it is, or isn’t, relevant to America and its future.
Let’s get into it.
There are two main events here: China’s STAR 50 Index of AI and chip stocks (it’s sort of like their NASDAQ) dropped about 40% in less than four months. That one move wiped out about $480 billion in value. The second event was another big stock group (called the CSI 300 Index) dropping more than 20% since June, meaning it’s now in bear market territory. 1
No arguing whether or not it’s significant. But does it mean anything for us?
China and America’s relationship with AI does share certain qualities. The main one being concentration. Estimates have AI as being around 42% of China’s market, and 49% of our S&P 500.2 We’re also seeing investors from both countries questioning how, and if, all of this AI spending will pay off.
Common ground does exist there, but there are huge differences too. While China’s AI stocks fell around 40%, America’s Nasdaq dropped 6% below its high.3 Another difference is the make-up of the actual investors: China’s market is largely made up of individual traders, while the US is dominated by institutions.4 Also, China’s has state funding that actively participates in markets to steer prices.5 Our government makes policies that affect markets, but they aren’t participating to the same extent as China.
But the biggest difference might be price. In October, China’s STAR 50 Index traded at about 100 times its companies’ combined earnings over the past year. America’s Nasdaq 100, home to many of America’s largest tech companies, traded at about 30.6
So there are certainly common themes between the two markets, but far too many differences to view one as an indicator of the other. If things go poorly in America, it won’t necessarily be because of China. We get why someone would see these headlines and jump to conclusions, but it’s always worth digging deeper before you let a scary article thumbnail change your investment decisions.
*Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Laurel Financial Group is a separate entity from WFAFN.
*This material is intended for informational and educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation. Past performance is not indicative of future results.
*The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.
*The Nasdaq 100 Index includes 100 of the largest nonfinancial companies listed on the Nasdaq Stock Market, based on market capitalization.
*The SSE Science and Technology Innovation Board 50 Index (STAR 50) consists of the 50 largest and most actively traded securities listed on the Shanghai Stock Exchange's Science and Technology Innovation Board.
*The CSI 300 Index consists of the 300 largest and most actively traded stocks listed on the Shanghai and Shenzhen Stock Exchanges.
*All indices are unmanaged and investors cannot invest directly in an index.
*International and emerging market investments involve additional risks including political and economic instability, currency fluctuations, different financial reporting standards, and limited regulatory oversight.
FOOTNOTES
1. China's STAR 50 Index fell about 40% in less than four months, erasing about $480 billion in market value, and the CSI 300 Index fell about 20% from its June high. Reuters, "In China, the AI bubble has already burst," October 26, 2026. https://www.globalbankingandfinance.com/analysis-in-china-ai-bubble-already-burst/
2. Goldman Sachs estimated that stocks tied to AI made up 42% of China's market value (Reuters, see footnote 1). JPMorgan estimated that a basket of 41 companies tied to AI made up 49% of the S&P 500's market value. GuruFocus via Longbridge, October 9, 2026. https://longbridge.com/en/news/301426608
3. When the STAR 50 had fallen about 40%, the Nasdaq was about 6% below its record high. Reuters, see footnote 1.
4. Individual investors account for roughly 80% of stock trading in China, compared with roughly 20% in the U.S. John Yasuda, "Understanding the Chinese Stock Market," Peterson Institute for International Economics, May 11, 2022. https://www.piie.com/sites/default/files/documents/2022-05-11yasudappt.pdf
5. Chinese state-backed investors have sold into rallies to keep market gains in check. Reuters, see footnote 1.
6. In late October 2026, the STAR 50 traded at about 100 times trailing earnings, down from nearly 250 at its high, while the Nasdaq 100 traded at about 30. Reuters, see footnote 1.
As usual, the truth is somewhere in the middle. China is, in fact, experiencing some notable activity. And as with any significant market around the world, it’s worth paying attention to, and contemplating how it is, or isn’t, relevant to America and its future.
Let’s get into it.
There are two main events here: China’s STAR 50 Index of AI and chip stocks (it’s sort of like their NASDAQ) dropped about 40% in less than four months. That one move wiped out about $480 billion in value. The second event was another big stock group (called the CSI 300 Index) dropping more than 20% since June, meaning it’s now in bear market territory. 1
No arguing whether or not it’s significant. But does it mean anything for us?
China and America’s relationship with AI does share certain qualities. The main one being concentration. Estimates have AI as being around 42% of China’s market, and 49% of our S&P 500.2 We’re also seeing investors from both countries questioning how, and if, all of this AI spending will pay off.
Common ground does exist there, but there are huge differences too. While China’s AI stocks fell around 40%, America’s Nasdaq dropped 6% below its high.3 Another difference is the make-up of the actual investors: China’s market is largely made up of individual traders, while the US is dominated by institutions.4 Also, China’s has state funding that actively participates in markets to steer prices.5 Our government makes policies that affect markets, but they aren’t participating to the same extent as China.
But the biggest difference might be price. In October, China’s STAR 50 Index traded at about 100 times its companies’ combined earnings over the past year. America’s Nasdaq 100, home to many of America’s largest tech companies, traded at about 30.6
So there are certainly common themes between the two markets, but far too many differences to view one as an indicator of the other. If things go poorly in America, it won’t necessarily be because of China. We get why someone would see these headlines and jump to conclusions, but it’s always worth digging deeper before you let a scary article thumbnail change your investment decisions.
*Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Laurel Financial Group is a separate entity from WFAFN.
*This material is intended for informational and educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation. Past performance is not indicative of future results.
*The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.
*The Nasdaq 100 Index includes 100 of the largest nonfinancial companies listed on the Nasdaq Stock Market, based on market capitalization.
*The SSE Science and Technology Innovation Board 50 Index (STAR 50) consists of the 50 largest and most actively traded securities listed on the Shanghai Stock Exchange's Science and Technology Innovation Board.
*The CSI 300 Index consists of the 300 largest and most actively traded stocks listed on the Shanghai and Shenzhen Stock Exchanges.
*All indices are unmanaged and investors cannot invest directly in an index.
*International and emerging market investments involve additional risks including political and economic instability, currency fluctuations, different financial reporting standards, and limited regulatory oversight.
FOOTNOTES
1. China's STAR 50 Index fell about 40% in less than four months, erasing about $480 billion in market value, and the CSI 300 Index fell about 20% from its June high. Reuters, "In China, the AI bubble has already burst," October 26, 2026. https://www.globalbankingandfinance.com/analysis-in-china-ai-bubble-already-burst/
2. Goldman Sachs estimated that stocks tied to AI made up 42% of China's market value (Reuters, see footnote 1). JPMorgan estimated that a basket of 41 companies tied to AI made up 49% of the S&P 500's market value. GuruFocus via Longbridge, October 9, 2026. https://longbridge.com/en/news/301426608
3. When the STAR 50 had fallen about 40%, the Nasdaq was about 6% below its record high. Reuters, see footnote 1.
4. Individual investors account for roughly 80% of stock trading in China, compared with roughly 20% in the U.S. John Yasuda, "Understanding the Chinese Stock Market," Peterson Institute for International Economics, May 11, 2022. https://www.piie.com/sites/default/files/documents/2022-05-11yasudappt.pdf
5. Chinese state-backed investors have sold into rallies to keep market gains in check. Reuters, see footnote 1.
6. In late October 2026, the STAR 50 traded at about 100 times trailing earnings, down from nearly 250 at its high, while the Nasdaq 100 traded at about 30. Reuters, see footnote 1.