Chinese stocks tumble as global tech selloff deepens

China and Hong Kong stocks witnessed a decline on Friday due to a tech selloff originating in the Nasdaq, which has raised concerns about the sustainability of the AI boom. However, bargain hunting helped reduce the losses in mainland markets, which were bolstered by Beijing's supportive measures. China's blue-chip CSI300 Index declined by 1.5%, but was on track to end a 12-week losing streak. The Shanghai Composite Index dropped by 1.1%.

The tech-heavy selloff was initially more severe, with the tech-focused Star 50 Index and the AI Index plunging by as much as 5% before recovering some of their losses. In Hong Kong, the main benchmark Hang Seng Index slipped by 1%, while the Hang Seng Artificial Intelligence Index plummeted by 4%.

The overnight market drop in US tech stocks, the steepest one-day decline since April 2025, led investors to worry about tighter scrutiny of the AI sector following a Democratic win in the US midterm elections. This risk-off mood spread to Asia early on, with South Korea's Kospi falling by more than 8% and Japan's Nikkei declining by 5%.

Dong Baozhen, chairman of asset manager Lingtong Shengtai, noted that the US tech stock slump had undermined the foundation of the AI-driven rally, raising doubts about the resilience of AI bull markets in other regions. Chinese AI hardware stocks with a significant US market exposure suffered the most, with Zhongji Innolight, a key optical transceiver maker, dropping 8% to a one-year low, while Eoptolink Technology fell by 7%.

AI software companies also faced pressure, with Zhipu sinking as much as 15.4% amid worries that a broader AI backlash could hinder the timing of Anthropic's anticipated IPO.

Jason Hsu, founder and chairman of Rayliant Global Advisors, stressed that China's sentiment-driven stock market was heavily swayed by US AI stock performance. Technology stocks play a crucial role in China's stock market, and any indications of a bubble burst in the US could have a ripple effect on the Chinese market. Despite the early panic selling, bargain hunters managed to trim losses, and the market was still on track for weekly gains following Beijing's market support measures and reaffirmation of its commitment to preventing systemic risks.

Pepperstone strategist Dilin Wu cautioned that China cannot entirely escape the impact of Wall Street's selling activity, particularly with the intensity of the current downturn. However, she advised investors to be cautious about treating China's entire AI supply chain as a single trade, as growth in AI chip players like Huawei and Cambricon is driven by China's drive for technological self-reliance. When investors rush to mitigate risk, even strong companies can face sell-offs.