China was in full peacock strutting mode this week hosting its largest-ever military parade with shiny new weapons and President Xi cozying up with best buddies Russian leader Vladimir Putin and North Korea supremo Kim Jong-Un.
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Weaker Markets
The idea was to convey a message of strength to the West, but the Chinese stock market didn’t follow the script.
Overnight China’s blue-chip index recorded its largest decline in five months, hit by regulatory concerns, a downturn in previously powering tech stocks and even ramifications from that macho military parade.
The CSI300 index slumped by 2.1% with Shanghai stocks diminishing by 1.3% and the Hang Seng Index in Hong Kong declining over 1%.
It also hit Chinese-linked ETFs with the iShares MSCI China ETF (MCHI) down nearly 2%.
One of the main drivers behind the dip was concerns that financial regulators are reportedly considering measures such as lifting some short-selling restrictions, ramping up investor anxiety about a potential overvaluation of the market. Geopolitical concerns were also heightened given the angry U.S. response to the military event.
Nvidia Boost
Technology stocks, particularly Nvidia (NVDA) rival AI chip maker Cambricon, led the downward trend, with its shares plunging by 15%. That’s after a 75% surge higher in the last month.
Analysts said that the volatility in the markets reflected growing wariness that valuations for Chinese hardware and semiconductor firms have run too far ahead of fundamentals. That’s despite the Chinese government championing domestic chipmaking as it battles the U.S. for supremacy in the AI sector.
“Cambricon’s sharp drop reflects market pressure to correct its lofty valuation,” said Dickie Wong, director of the Institute of Securities Dealers. “Despite a sharp gain in 2025, its price-earnings multiple is unsustainable, and a pullback was inevitable.”
Kathleen Brooks, research director at XTB, added: “Chinese officials want steadier returns and to promote ‘long term value’ not just short-term gains for speculators.”
She sees the downturn as a potential boon for U.S. stocks, particularly Nvidia.
“There was concern that Nvidia would not be able to capitalize on sales to China due to political risks, which fueled investor demand for Chinese tech stocks in recent weeks. Now that the Chinese government is trying to actively limit speculation and short-term gains, this could trigger some rotation out of Chinese stocks and that money is most likely going to end up in the US tech sector,” she said.
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