Chinese stocks recover as chipmaking breakthrough eases Iran war worries

SHANGHAI: Chinese stocks recouped losses in afternoon trade on Monday, as news of a breakthrough in China’s chipmaking technologies injected vigour into a market edgy about the deepening Iran war and the upcoming meeting between the Chinese and US presidents.

Hong Kong stocks rebounded after three consecutive days of declines as traders await results from heavyweights Tencent and Alibaba in a busy week for earnings.

China’s blue-chip CSI300 Index fell 0.6 percent by the lunch break, but ended the session flat. The Shanghai Composite Index recovered most of the morning losses, down 0.3 percent. Hong Kong’s Hang Seng rose 1.5 percent.

Sentiment was aided by a surge in chipmaking stocks, triggered by a Reuters report that China’s Hua Hong Group has developed advanced chip-making tech that can be used to produce AI chips.

But uncertainty lingers as there’s no sign of a quick end to the Middle East conflict that has roiled global markets and sent oil prices soaring.

On Sunday, US officials predicted that the US-Israeli war on Iran would end within weeks, but Iran said it remained “stable and strong” and ready to defend itself.

China on Monday said it is in communication “with all sides” about the situation in the Strait of Hormuz, reiterating its call for a de-escalation of the Middle East conflict.

“Cost-push inflation in an environment of weak demand does China little good,” Gavekal Dragonomics’ analysts Thomas Gatley and Wei He wrote. Higher energy prices “will put downward pressure on real growth.”

The Iran situation also complicates outcomes of the upcoming summit between US President Donald Trump and Chinese President Xi Jinping later this month.

“Recent developments, especially in the Middle East, have added complexity to the outlook for the meeting,” Morgan Stanley said in a note to clients.

If the summit is cancelled or postponed, “we believe this would heighten market concerns over rising inflation and a further growth slowdown globally.” China said on Monday it is in communication with the US about Trump’s visit to China.

Gold related stocks, metal and tech shares fell sharply as investors swarmed into defensive plays such as consumer and banking stocks. In Hong Kong, tech shares jumped nearly 3 percent after heavy sell-offs recently.