China Markets Sink on Tech Selloff, Talk of Regulatory Curbs

Chinese markets fell on Thursday as interest in tech stocks faded and reports emerged of possible regulatory curbs on speculation.

Reality appeared to return, as if on cue, after the end of a big military parade set up by President Xi Jinping and watched by leaders of some of the world’s most authoritarian states.

Sentiment was also soured by a tumble in tech bellwether Cambricon amid worries about fund outflows in an upcoming index rebalancing.

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The Shanghai Composite Index, which hit 10-year highs last week, sank nearly 2% in the morning session and was poised for its worst day in nearly five months. The blue-chip CSI300 benchmark slumped 2.5%, while Hong Kong’s Hang Seng Index dropped more than 1%.

China’s financial regulators are considering a number of cooling measures for the stock market, including removing some short-selling curbs, according to a Bloomberg report.

That gave investors reason to sell after China’s stock market jumped 10% in August in heavy trading and record margin financing, raising concerns about overheating.

“From a technical perspective, there is a strong need for profit-taking, and today’s Bloomberg report has accelerated investor exits,” Zhao Jian, head of Atlantis Finance Research Institute, said.

“Then from a financial stability perspective, we believe regulators don’t want such a rapid and drastic rise,” which could trigger significant market volatility, he said.

The end of China’s biggest military parade on Wednesday added to the profit-taking. Investors had widely expected authorities to ensure market stability ahead of the event.

“Additionally, the A-share market had previously priced in substantial optimism around yesterday’s military parade,” Kenny Ng, securities strategist at China Everbright Securities International, said.

“With the event concluded, related thematic stocks are now retreating, contributing further downward pressure.”

Chipmaker leads selloff

Tech shares, a key pillar of China’s bull run, led the market decline on Thursday with AI chip giant Cambricon slumping 13%, on track for its biggest daily loss since January.

A doubling in Cambricon’s share price in August boosted the stock’s weighting in the STAR50 Index to 15%. That exceeds the weighting cap of 10%, raising concerns of rebalancing by passive funds as the result of a planned weighting adjustment of the index on September 12.

An index tracking China’s communications stocks tumbled 8%, while the CSI artificial intelligence index dropped 7%.

Biotech, cloud computing and chipmaking stocks are also among the biggest losers.

Shanghai’s tech-heavy STAR Market lost 5%, while Hong Kong’s Hang Seng Tech Index weakened 2%.

Although some believe China’s market rally could extend through October, “lots of speculative funds have already begun to take profits, suggesting caution,” UBS said in a note to clients.

“Without further supportive policies or industry catalysts, such as a new model launch from DeepSeek … the market may revert to a more rational tone and gradually cool off.”

BYD also feels the heat

Shares of BYD fell by over 3% in afternoon trading in Hong Kong on news that China’s top EV maker had slashed its sales target by as much as 16% to 4.6 million vehicles.

The EV giant faces its slowest annual growth in five years and other signs that its era of record-setting expansion could be drawing to a close.

The carmaker told analysts in March it was targeting sales of 5.5 million vehicles for 2025. But internally, the number has been downgraded multiple times in recent months, according to sources who spoke to Reuters.

The company, which appears to be feeling the heat from growing competition with rivals such as Geely Auto and Leapmotor, reported a 30% drop in quarterly profit, its first decline in more than three years.

The new target would be the slowest annual growth since 2020, when sales fell by 7%.

The pared-back outlook also speaks to the deflationary pressure weighing on the world’s second-largest economy, where domestic demand has been hit by a prolonged housing downturn.

BYD’s sales of pure electric vehicles and plug-in hybrids grew tenfold between 2020 and 2024, to 4.3 million vehicles, putting it on par with General Motors and Ford in terms of global sales.

Yet it is now showing undeniable signs of a slowdown, especially in China, its main market, which accounts for almost 80% of its sales and is in the midst of a bruising, years-old price war.