Chinese stocks head for weekly loss as AI rally loses steam

China's stock market showed signs of weakening as the rally in AI shares began to lose momentum, with overall gains for the week looking uncertain. The blue-chip CSI300 Index and the Shanghai Composite Index both rose by 0.4% by midday, while the Hang Seng Index in Hong Kong increased by 2.1%. However, for the week, the CSI300 Index was expected to close nearly 1% lower, while the Hang Seng Index was projected to finish up 0.6%.

Consumer staples shares led the onshore gains, surging 2.6%, as sentiment towards AI supply chain stocks cooled. Investors began shifting their focus towards traditional sectors. Chinese liquor giant Kweichow Moutai shares experienced a notable rise of 2.4%. The tech-focused STAR50 Index declined by 0.7%, and had lost nearly 4% over the course of the week. The CSI Artificial Intelligence Index also slipped 0.2%.

Analysts at Morgan Stanley noted that onshore sentiment remained subdued this week due to higher US yield concerns and weak domestic macroeconomic data. They lowered their China equity index targets, factoring in weaker growth prospects, tighter liquidity, less favorable flow dynamics, and rising regulatory uncertainty. In Hong Kong, shares climbed after US Federal Reserve Governor Christopher Waller indicated a preference for keeping interest rates steady if the upcoming inflation data showed moderating price pressures.

Tech giants in Hong Kong rebounded from a two-month low, with Alibaba shares rising 3.4%. Xiaomi, a smartphone-to-electric vehicle manufacturer, saw its shares climb 3.1% following a deal with German auto dealers.