A rule aimed at curbing exposure to overvalued stocks is posing another challenge to China’s market, just as renewed Sino-American trade tensions have abruptly stalled the rally this month.
The rule, in place since 2016, bars investors from using stocks with a price-to-earnings ratio above 300 as collateral to borrow funds for buying shares — either of the same company or others. Thanks to a rally fueled by enthusiasm for AI, the number of mainland-listed firms that now exceed this PE threshold has surged about 30% on-year to 236, Bloomberg-compiled data show. Roughly a quarter of them, including chip designer Cambricon Technologies Corp. and Hua Hong Semiconductor, are in the tech sector.