SHANGHAI: China and Hong Kong stocks fell on Tuesday amid souring sentiment in Asia following Wall Street’s sharp declines, but losses were limited by an improving outlook around the expected impact of artificial intelligence.
China, Hong Kong stocks fall on deflationary worries
China’s blue-chip CSI 300 Index and the Shanghai Composite Index were down 0.5% by the lunch break, recouping some early losses.
In Hong Kong, the benchmark Hang Seng Index ended the morning session down 1%, after falling as much as 2.1%.
Asian stocks fell sharply on Tuesday as a market selloff extended on mounting worries that a wide-ranging trade war could dent US economic growth and lead to a recession.
US stocks plunged on Monday, with the S&P 500 recording its biggest one-day drop in nearly three months.
“US exceptionalism is at least pausing,” Citi said in a note to clients. “We therefore downgrade US equities to neutral, upgrade China to overweight.”
Pacific Securities said the US policies actually “Make Others Great Again”, in a jibe at Trump’s “Make America Great Again” mantra.
Despite the recent declines, the brokerage said that China’s tech-led bull run still has legs.
Even as Trump hiked tariffs on China, “sentiment toward the Chinese economy has continued to improve,” Goldman Sachs wrote. The bank has pulled forward its estimated AI boost to China’s GDP growth, expecting an impact to start in 2026.
Following the recent surge in tech shares, money appears to be rotating into cyclical stocks this week.
China’s consumer, chemicals and banking stocks rose, while tech shares in sectors including robotics, chipmaking and AI retreated following sharp gains previously.
In Hong Kong, tech shares fell and raw material stocks tumbled, reflecting lingering concerns over the economy.
“The Chinese economy shows signs of green shoots. But deflation will not end in 2025,” said Loomis Sayles.
“Uncertainty persists about scale and effectiveness of stimulus” and “a US tariff hike on Chinese products would pose more downside risks to China’s growth and inflation outlook.”
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