Rare earth, defence gains counter tech slump in China and Hong Kong

SHANGHAI: China and Hong Kong stocks were trading almost flat on Tuesday, as gains in rare earth and defence shares countered losses in technology and artificial intelligence counters.  

• China’s blue-chip CSI300 Index edged up 0.1% by the lunch break, while the Shanghai Composite Index gained 0.4%.
• Hong Kong’s benchmark Hang Seng was up 0.1%.
• The Hang Seng Tech Index dropped as much as 3% to the lowest since July 15, 2025, after announcements from Chinese telecom firms on value-added tax adjustments stoked concerns of broader tax increases across the tech sector.
• Tencent shares fell as much as 6%, touching their weakest level since early August last year, before recouping some of the losses.
• Defence and rare earth shares led gains onshore, rising 3.8% and 2.8% respectively, while AI stocks fell 1%.
• Non-ferrous metal shares stabilised after sharp losses in the previous two sessions. In Hong Kong, material stocks gained 1.6%.
• China investors widely expect the macroeconomic backdrop to remain steady, with signs pointing to a gradual recovery, UBS analysts said in a note to investors.
• They said the market style is gradually transitioning from being driven by liquidity and themes to being driven by earnings and leading companies.
• “A key focus will be on verifying the recovery in producer price index (PPI) and corporate profits, as these factors will be crucial in determining whether the market can shift from valuation rerating to earnings-driven growth,” they said.
• Eastroc Beverage shares traded flat in their Hong Kong trading debut, after the Chinese energy drinks producer raised HK$10.14 billion ($1.3 billion) in a share sale.