Tech shares drag China stocks lower as US yields rise

SHANGHAI: China stocks fell on Thursday as traders returning from a week-long holiday faced renewed geopolitical tensions, higher global yields, and a looming earnings season that threatens still-lofty valuations of Chinese tech shares.

China’s stock benchmarks are now near where they were two years ago, when a stimulus bonanza from Beijing lit up share prices and boosted hopes for a slow bull - which is now limping in a three-month downtrend.

The large-cap CSI300 Index lost 0.4% in morning trade.

The index is struggling near a one-year low and is down roughly 15% from its June peak.

The Shanghai Composite Index is down 0.3% while the tech-focused STAR 50 Index slumped nearly 4%.

In Hong Kong, where the market fell nearly 2% during China’s National Day holiday, Hang Seng lost another 2% on Thursday.

Wang Zhuo, partner of Shanghai Zhuozhu Investment, said excessive optimism toward “hard tech” shares such as chipmakers in the first half fuelled irrationally high valuations, but “bubbles would inevitably burst.”

Following a tumble that wiped out more than one-third of its value since July 1, the STAR 50 Index still trades at roughly 100 times earnings.

Risk appetite is also curbed by renewed Sino-US tensions as optimism from last month’s Sino-US leadership meetings faded.

Taiwan’s de facto ambassador to Washington said on Wednesday that ties with the United States remained robust after last month’s summit between Donald Trump and Xi Jinping.

And the Federal Communications Commission said on Wednesday it will vote on October 29 to bar all Chinese labs from testing electronic devices for use in the US, widening a previous action targeting Beijing.

Traders are also monitoring Sino-EU trade talks this month as China has reportedly rejected a European Union request for voluntary curbs on hybrid car exports.

In another damper on sentiment, China Securities said that despite a smaller chance of a follow-up US rate hike this month, “rapidly rising 30-year US Treasury yields will continue to curb China stocks.”

Tech shares are among the biggest losers on Thursday, while energy, real estate and banking shares gained.