(March 25): Chinese technology stocks fell from a three-year high to the brink of a correction in just five sessions, fuelled by a lack of positive surprise in earnings and Xiaomi Corp’s jumbo share sale.

The Hang Seng Tech Index dropped as much as 4.1% on Tuesday, extending its slide from a March 18 high to more than 9%. Xiaomi, which raised US$5.5 billion (RM24.41 billion) in an upsized placement, was down as much as 6.6%. Alibaba Group Holding Ltd fell more than 3% following its chairman’s warning on a potential bubble forming in datacentre construction.

A world-beating rally in Chinese tech stocks is rapidly cooling as the initial shock-and-awe from DeepSeek’s AI model wanes, with investors demanding more real-life applications before bidding up shares further. While the nation’s tech earnings mostly topped estimates or came in line in the just-concluded reporting season, such expectations were already baked in.

Earnings have been good so far, but they weren’t enough to bring “positive surprise”, said Steven Leung, an executive director at UOB Kay Hian Hong Kong Ltd. “Xiaomi’s upsized share placement has weighed on market sentiment today with some investors worrying about such an offering creating pressure on market liquidity.”

Xiaomi’s sale follows BYD Co’s US$5.6 billion offering earlier this month. While the funding may benefit the companies over the longer term, shares are under immediate pressure due to increased supply and as they were sold at a discount, according to analysts.

Tuesday’s retreat bucks gains across most of Asia following signals from US President Donald Trump that the sector-specific and reciprocal tariffs expected on April 2 may be less daunting than feared. The Hang Seng China Enterprises Index fell more than 2%.

Even with the day’s slide, the Hang Seng Tech gauge remains up more than 23% for the year. Investors have rushed to re-evaluate Chinese tech stocks since the rise of DeepSeek earlier this year, with President Xi Jinping’s embrace of major business leaders also accelerating stock gains.

Any further selloff will worry investors and may potentially undermine a growing narrative that Chinese markets can become an alternative investment ground as investors reassess US exceptionalism.

Another big decliner on Tuesday was Sunny Optical Technology Group, which plunged 11% after the company cautioned against a capacity glut.

“Alibaba’s caution around a potential bubble in AI data centre buildouts has added pressure, hinting that the red-hot AI theme may face a short-term bump,” said Charu Chanana, chief investment strategist at Saxo Markets.

Uploaded by Arion Yeow