Mainland Chinese stocks hit 13-month low on tech sell-off as Hong Kong market holds up

Mainland Chinese stocks reached their lowest level in 13 months on Monday due to a tech sell-off driven by concerns over global capital costs and soaring oil prices, which may curb risk appetite. The CSI 300 Index fell 2.2% to its lowest level since August 21, 2022, while the Star Market 50 index dropped 4.1%, marking its steepest single-day decline in five weeks. The Hang Seng Index in Hong Kong, however, increased by 0.6%.

Chinese technology stocks suffered significant losses as crude oil prices surpassed $100 a barrel following the US rejection of Iran's proposal to restore trade through the Strait of Hormuz. This uncertainty kept inflation concerns and Treasury yields high. China's economic recovery in August was uneven, with exports still strong but domestic demand weak.

Market sentiment was further dampened by speculation that Beijing might permit local companies to purchase Nvidia's chips, potentially intensifying competition for Chinese chipmakers. Additionally, concerns about potential US sanctions on Chinese optical transceiver manufacturers like Zhongji Innolight and Eoptolink Technology further eroded investor confidence.

Analyst Fu Jingtao from Shenwan Hongyuan Group noted that the markets are highly sensitive to oil prices, US Treasury yields, and expectations of a potential rate increase by the US Federal Reserve in the short term. He also pointed out that, with no structural opportunities for technology stocks, the market may undergo consolidation for the remainder of 2026.

Investors reduced their exposure to Chinese stocks during the three-day trading week leading up to the National Day "golden week" starting on Thursday, aiming to avoid the risk of overseas developments during the trading break.

The meeting between US President Donald Trump and Chinese President Xi Jinping last week did not elicit much enthusiasm from traders, as the agreements to extend the tariff truce and AI collaborations largely met market expectations. Fu Jingtao from Shenwan Hongyuan Group remarked that the progress on specific economic issues was not significant, stating that the reduction in tariffs for $60 billion in bilateral trade and the purchase of coal from the US were modest steps.

The agreements also failed to address other pressing concerns, as investors anticipated continued volatility in stocks throughout the week due to upcoming US economic data releases, such as the personal consumption expenditure data and labor market figures, which could impact the outlook for monetary policy.