(July 30): Chinese tech stocks plunged on Thursday, led by high-flying semiconductor names, as concerns over stretched valuations and crowded positioning intensified a rotation out of some of this year’s best-performing sectors.

The STAR 50 Index slumped 5.4% to close at its lowest since April 30, despite recovering from intraday lows in afternoon trading. Shares of Yuanjie Semiconductor Technology Co and Hua Hong Grace Semiconductor Ltd slumped at least 14% each. The tech-heavy gauge has lost over 28% in July after surging about 75% in the previous three months.

Markets showed little response to the readout from the Communist Party’s decision-making Politburo meeting, which was released just about 30 minutes before the close of trading. The nation’s top officials struck a more supportive tone on the economy but stopped short of announcing fresh stimulus at the key meeting.

Shares of optical-component makers such as Eoptolink Technology Inc and Suzhou TFC Optical Communication Co — another hot segment of the market — plummeted more than 11% each, dragging the broader CSI 300 Index down 1.1%. Down almost 9% in July, the onshore benchmark is on course for its worst performance since January 2016.

“The weakness in Chinese chip stocks looks more like a structural rotation, as funds shift into consumer, property and dividend plays,” said Xiang Xiaotian, director at Shanghai Chengzhou Investment Management. It also “reflects a broader deleveraging of AI trades globally. After years of gains, investors sitting on sizeable profits and leverage are locking in gains and cutting positions,” he added.

The moves in Chinese stocks came as the global AI trade has faltered in recent weeks. Beyond concerns about valuations and positioning, investors have also grown wary of intensifying competition, circular deals and mounting signs that companies may be overinvesting in AI infrastructure and capacity.

The latest slide is also likely to pose a fresh challenge to Chinese authorities, who already rolled out a series of measures this month to stem a tech-led sell-off, including mobilising state-backed funds, regulators, insurers and asset managers.

A deepening slowdown in the world’s second-biggest economy had raised the stakes for the Politburo meeting. The government plans to “roll out pragmatic and effective new policies in a timely manner”, according to a Xinhua News Agency readout. However, it provided little details on the potential new measures to be taken.

“Investors may still need more time to digest these developments, and it will likely take time for confidence and valuations to fully reflect the policy backdrop,” said Andrew Zhu, fund manager at Hainan Shire Asset Management Co.

Meanwhile, trading activity in exchange-traded funds favoured by China’s state-backed national team picked up in afternoon trading, coinciding with the paring of losses in some tech-heavy indices. The turnover in the ChinaAMC STAR 50 ETF reached 15 billion yuan (RM9.07 billion), while that for the E Fund ChiNext ETF hit nearly 17 billion yuan, both being the second-highest levels on record.

As the tech sector finished the session with losses, subgauges of consumer staples and discretionary stocks rose 2.9% and 1.8%, respectively, leading gains among sectoral groups on the CSI 300 on Thursday.

Uploaded by Chng Shear Lane