China stocks fell on Thursday as investors returned from a week-long holiday to face geopolitical tensions and high bond yields. The CSI300 index dropped 0.4%, nearing a one-year low. Many tech stocks also fell, as investors worry that high valuations might not match the results in the upcoming earnings season.
China stocks fell on Thursday as investors returned from a week-long holiday to renewed geopolitical tensions, higher global bond yields and concerns over stretched valuations in the technology sector, as per a Reuters report.
The largecap CSI300 index fell 0.4% in morning trading, hovering near a one-year low and extending its decline to about 15% from its June peak. The Shanghai Composite slipped 0.3%, while the tech-heavy STAR 50 index dropped nearly 4%.
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In Hong Kong, the Hang Seng Index fell about 2% during China's National Day holiday and fell another 2% on Thursday.
Chinese equities have retreated to levels seen about two years ago, when a wave of stimulus measures from Beijing had fuelled a powerful rally and raised expectations of a sustained bull market. That rally has since lost momentum, with the market now caught in a three-month downtrend.
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The STAR 50 index has lost more than one-third of its value since July 1, but still trades at around 100 times earnings, highlighting concerns that valuations remain excessive despite the recent correction.
The report stated that investor enthusiasm for so-called hard-tech stocks, including chipmakers, had driven valuations to unsustainably high levels during the first half of the year. The subsequent selloff has sharply reduced risk appetite, particularly ahead of the upcoming earnings season, when investors will assess whether corporate results can justify elevated valuations.
Renewed tensions between China and the United States have added to the pressure. Optimism generated by last month's meeting between U.S. President Donald Trump and Chinese President Xi Jinping has faded, with investors once again focusing on trade and technology restrictions.
The U.S. Federal Communications Commission said on Wednesday it would vote on Oct. 29 on a proposal to prevent Chinese laboratories from testing electronic devices for use in the United States. The move would broaden earlier measures aimed at restricting China's role in technology supply chains, as per the report.
Investors are also watching China-European Union trade negotiations this month. China has reportedly rejected an EU request for voluntary restrictions on hybrid vehicle exports, adding another potential source of friction to trade relations.
Higher U.S. Treasury yields are providing another headwind for Chinese equities. China Securities said that even though the likelihood of another U.S. interest-rate increase this month has diminished, a rapid rise in 30-year Treasury yields could continue to weigh on Chinese stocks.
Technology shares were among the biggest decliners on Thursday, while energy, real estate and banking stocks gained, highlighting a rotation away from high-valuation growth sectors as investors reassessed risks and valuations, the report stated.
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