Shanghai Composite Slides 1.3% as China Tech Sell-Off Deepens and Over 4,900 Stocks Fall Despite Asian Rally

Chinese stocks fell sharply on Tuesday as selling accelerated in the afternoon, extending a sell-off in technology shares even as markets in South Korea and Japan rallied on renewed optimism about artificial intelligence.

The Shanghai Composite index closed down 49.22 points, or 1.33%, at 3,648.30. The Shenzhen Component index fell about 2.5%. The start-up-focused ChiNext index dropped 3.41% after rising more than 1% earlier in the session.

More than 4,900 stocks fell across the Shanghai and Shenzhen markets. Combined turnover was about 1.46 trillion yuan, roughly 148 billion yuan less than the previous session.

Afternoon selling

The losses grew as the day went on. At the midday break, the Shanghai Composite was down only about 0.1% at 3,692.58. The blue-chip CSI 300 was also down slightly, and the tech-focused STAR50 index had fallen 1.5%.

Technology and AI-related shares resumed their decline after early gains faded. The CSI Semiconductor index fell 2.2% by midday to a six-month low, and the CSI AI index also declined.

Selling then picked up in the afternoon. Bloomberg News reported that the final-hour slide highlighted the market's reliance on state-backed funds, often called the "national team," for support.

Pharmaceutical stocks also weakened, with some falling by the daily limit. On-device AI stocks were sold heavily.

A few areas held up. Robotics stocks recorded multiple consecutive limit-up moves, and consumer names in food, beverage and retail were active. Bank shares gained in the morning, with some hitting multiyear or record highs as investors sought defensive holdings.

AI bubble deflates

Tuesday's decline adds to a steep correction in China's technology sector, which stands in contrast to the recovery in other Asian chip markets.

The STAR50 index, which tracks leading AI and semiconductor companies on Shanghai's Nasdaq-style board, has fallen about 40% from its July peak, wiping out roughly $480 billion in market value, according to Reuters. The CSI 300 entered a bear market last week, down 20% from its June high.

Many of the hardest-hit stocks were favorites of retail investors. Shares of robot maker Unitree have halved since listing in August, and chipmaker CXMT has lost more than a quarter of its value in the past month.

Valuations remain high despite the sell-off. The STAR50 still trades at around 100 times trailing earnings, compared with about 30 times for the Nasdaq 100, which suggests further losses are possible.

Diverging from the region

Chinese stocks moved in the opposite direction to their neighbors. South Korea's KOSPI jumped 3.1% and Japan's Nikkei 225 rose 1.7%. Both were lifted by gains in chipmakers after Anthropic, the developer of the Claude AI models, filed for a U.S. initial public offering.

Analysts say Chinese tech stocks face particular pressures, including the threat of U.S. and other countries' bans on Chinese equipment in data centers, along with stretched valuations after a two-year rally.

Data fails to lift sentiment

Economic data did little to help. Industrial profit growth accelerated in September, but the gains were uneven across sectors.

China's central bank said it plans a swap facility to provide emergency liquidity to non-bank financial institutions facing large redemptions, a sign of concern about stress in funds. Analysts at Huajin Securities said the facility "could keep short-term liquidity conditions accommodative."

Analysts at Sinolink Securities said a lasting rebound may take time. "A more sustained recovery could require further de-leveraging over the medium term," they wrote in a note.

Policy in focus

Investors are watching for signals from Beijing after the ruling Communist Party opened a key plenum focused on governance. Hopes for major new stimulus have faded in recent weeks, adding to the pressure on stocks.

Chinese authorities have spent two years trying to foster what officials call a "slow bull" market with steady gains, cracking down on leverage and high-frequency trading. The AI frenzy and its collapse have tested those efforts.

Global backdrop

Markets globally are bracing for a busy week. The U.S. Federal Reserve announces its interest rate decision on Wednesday, the Bank of Japan follows on Friday, and major U.S. technology companies report quarterly earnings.

Any further sign of strength in global AI spending could test whether China's tech sell-off has run its course.

_This article is for information only and does not constitute financial advice._