China stocks dip from 10-year highs as rotation kicks in

HONG KONG: The Shanghai stock benchmark retreated from a fresh 10-year high to close lower on Tuesday, as investors rotated into undervalued sectors following a blistering rally.

The Shanghai Composite Index ended 0.4 percent lower to 3,868.38, surrendering earlier gains that had lifted it to a fresh high since August 2015.

China’s blue-chip CSI300 Index declined around 0.4 percent after touching a fresh intraday high since July 2022.

Investor enthusiasm remains strong, with combined turnover on the Shanghai and Shenzhen exchanges exceeding 2 trillion yuan ($279.61 billion) for the tenth consecutive session, the longest such streak on record.

However, technical indicators began showing early signs of exhaustion following a roughly 25 percent rebound in the Shanghai benchmark since its April low.

The relative strength index (RSI) was at 87.9, well above the 70 mark that many analysts consider indicative of an overheated market.

“After a solid run in Chinese equities, it’s only natural to question whether this momentum will continue,” Herald van der Linde, head of equity strategy, Asia Pacific at HSBC, said.

Nomura analysts said Chinese equities aren’t at “bubble” levels yet, and near-term positive momentum amid strong liquidity flows and stable US-China relations should lift the market.

The real estate sector lost 1.2 percent, paring gains sparked by Shanghai’s latest efforts to boost the housing market.

The rare earth sector fell 2.4 percent after U.S President Donald Trump said China has to give the US magnets or face 200 percent tariff.

Semiconductors shed 0.6 percent, retreating from a four-year high, with chipmaker Cambricon losing 4 percent from its record peak.

Meanwhile, the consumer staples sector rose 0.5 percent and the liquor index added 0.3 percent.

Hong Kong’s Hang Seng China Enterprises Index lost 1.1 percent and the benchmark Hang Seng Index fell 1.2 percent.

HSBC raised its year-end targets for HSCE and HSI, suggesting around 7 percent additional upside from current levels.