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

Mainland Chinese stocks reached their lowest point in 13 months on Monday as technology shares continued their decline due to worries over high global borrowing costs and surging oil prices potentially dampening risk appetite. The CSI 300 Index shed 2.2% to a level not observed since August 21 of the previous year, while the Star Market 50 index fell 4.1%, marking its sharpest single-day drop in five weeks and nearing the low reached during July’s tech sell-off.

Hong Kong's Hang Seng Index, however, bucked the trend, gaining 0.6%. Chinese technology stocks took a significant hit as crude oil prices surged above $100 a barrel following the United States rejecting Iran's proposal to resume shipments through the Strait of Hormuz. The ongoing negotiations between Tehran and Washington kept inflation concerns alive and Treasury yields elevated.

China's economic recovery also remained uneven in August, with exports remaining robust while domestic demand lagged. Investor sentiment was further eroded by speculation that Beijing might permit local firms to purchase Nvidia's chips, potentially intensifying competition for Chinese chipmakers. Worries about potential US sanctions on China's leading optical transceiver manufacturers, such as Zhongji Innolight and Eoptolink Technology, also dampened investor confidence.

With no structural opportunities for technology stocks in sight, the market may be poised for consolidation throughout the remainder of 2026, according to Fu Jingtao, an analyst at Shenwan Hongyuan Group. Fu noted that the markets are highly sensitive to oil prices, US Treasury yields, and expectations of a US Federal Reserve rate increase in the short term.

With no structural opportunities for technology stocks in sight, the market may be primed for consolidation for the rest of 2026 Fu Jingtao, an analyst at Shenwan Hongyuan Group. Investors also reduced their exposure to Chinese stocks during the abbreviated three-day trading week before the National Day "golden week" starting on Thursday, aiming to avoid potential overseas developments during the market break.

The outcome of a recent meeting between U.S. President Donald Trump and Chinese President Xi Jinping failed to impress traders, as the agreed extensions of the tariff truce and AI collaborations largely met market expectations. "I don’t think the progress on specific economic issues is significant," said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

"The agreement on tariff reduction for $60 billion in bilateral trade is a positive step for both countries, but the size is rather small. So is the agreement on the purchase of coal from the US." Traders expected stocks to remain volatile throughout the week as the release of U.S. personal consumption expenditure data, the Federal Reserve's preferred inflation gauge, and labor market figures could reshape the outlook for monetary policy.