The buying spree has even spilled over to the three state-controlled phone operators, elevating China Mobile to the second-most valuable stock on the Shanghai bourse last month. A national digitalisation plan and the vast pool of user data in the phone carriers’ possession have reinforced expectations that the trio will become front runners in the foray into the AI business.

The heaviest trade occurred on March 24, when investors heaped some 480 billion yuan (US$69.7 billion) in to TMT (technology, media and telecoms) stocks to soak up 46 per cent of the day’s trade in China’s markets, according to Industrial Securities, a Chinese brokerage. The turnover of the tech stocks alone was more than four times the total in Hong Kong on that day.

02:02

ChatGPT competes with Japanese prime minister for best responses to National Assembly questions

ChatGPT competes with Japanese prime minister for best responses to National Assembly questions

Investors poured 8.1 trillion yuan into technology stocks in March, representing 38 per cent of transactions of yuan-traded shares for the month, according to the Securities Times, a newspaper operated by the People’s Daily.

Looser monetary policy and a lacklustre economy have prompted traders to shift to thematic investments from betting on stocks linked to the durability of economic growth over the past month.

“That’s why the digital economy has become the main theme of the market. This scenario is likely to remain unchanged in the following two quarters.”

Alibaba is the owner of this newspaper.

The momentum has strengthened this week after China’s internet regulator kicked off a security review of US memory chip maker Micron Technology, fuelling optimism that domestic players will grab more market share amid the nation’s drive for technology self-reliance.

The CSI TMT Industry Index, which tracks the largest 100 stocks in the sector, surged 16 per cent last month. That added 1.1 trillion yuan to the market value of the index members and trounced the benchmark CSI 300 Index, which fell 0.5 per cent.

The gauge’s 14-day relative strength index stood at 80 on Tuesday, the highest since July 2020, and well above the 70 level that signals stocks are technically overbought and poised for a pullback.

The outsized gains have prompted caution from investment banks including Bank of America and China Merchants Securities. The former lowered chip makers, hardware and software developers to an underweight position in its portfolio, citing rich valuations and unfavourable earnings trend.

“Investors need to notice that some popular bets might not generate profits in the short term, so there will be some corrections during the upcoming earnings season,” said Zhang Xia, an analyst at China Merchants Securities.

The tech trade will be tested by the release of first-quarter economic data this month. Weaker data is likely to fan speculation about more measures to boost growth and trigger a rotation to property and value stocks that stand to benefit most from the policy tailwind, according to Chen Li, chief economist at Soochow Securities in Shanghai.

For Industrial Securities, any pullback in the tech trade will be short-lived. A proprietary index created by the brokerage shows that sentiment is far from overheated now.

“In the short term, the digital economy has shown signs of overheating and the probability of swings is rising,” said Zhang. “Looking from the medium-term perspective, it’s still on the upward trend. The digital economy will still be the main theme of the market this year.”