China stocks rise on higher risk appetite; Hong Kong falls as traders brace for new stocks

SHANGHAI: Chinese stocks rose on Monday amid signs of an earnings recovery and rising risk appetite, but Hong Kong shares fell as traders braced for higher US rates and a flood of shares coming out of lock-up periods.

China’s large-cap CSI300 Index gained 0.7% by the lunch break, while the Shanghai Composite Index climbed 0.2%. In Hong Kong, Hang Seng dropped 1%.

Middle East tensions eased as the first round of talks between the US and Iran in Switzerland ended on Monday, and investors shifted their focus to the prospects of higher US interest rates.

A possible US monetary tightening has a greater impact on Hong Kong stocks than on China’s A-shares, as Beijing maintains strict capital controls.

“We remain overweight A-shares versus offshore markets,” Morgan Stanley said in a note, citing greater exposure to hard tech and support from the state-backed “National Team” of investors.

Meng Lei, China strategist at UBS Securities, said he expects 11% earnings growth for A-shares this year, up from 3.9% in 2025.

“We think the rollout of more supportive policies, progress in anti-involution and rising contribution of overseas revenue can help margin expansion,” he said.

Meng also pointed to signs of growing risk appetite in China, including a continuous shift of household deposits into stocks and a record-high margin financing.

On Monday, brokers, new energy stocks and chipmakers led the gains. But Hong Kong stocks fell as the release of locked-up shares looms following a boom in initial public offerings.

Tech shares lost 1%.

An estimated $274 billion of lock-up shares are projected to be released into the Hong Kong market over the next 12 months, Goldman Sachs said this month.

“We continue to caution that near-term volatility may persist amid July Hong Kong IPO unlocks and fading expectations of Fed rate cuts,” Morgan Stanley said. ‑Reuters