Chinese tech stocks experienced a sharp downturn on Tuesday after President Donald Trump announced further actions aimed at restricting US investments in China, intensifying the ongoing financial and technological decoupling between the world’s two largest economies.
The Hang Seng Tech Index dropped as much as 4.4%, marking its most significant decline since November. Major Chinese tech stocks such as Alibaba Group Holding Ltd. saw substantial losses, with shares falling 7.9% in Hong Kong and a 10% drop in its American depositary receipts. This decline follows a 5.2% drop in the Nasdaq Golden Dragon China Index overnight.
This setback threatens to reverse the strong rally in Chinese tech stocks observed earlier this year, which had been fueled by optimism surrounding advancements in artificial intelligence (AI), particularly following the rise of DeepSeek. While investors initially downplayed Trump’s earlier tariffs, the new measures have caused a reevaluation of the risks associated with geopolitical tensions.
Over the weekend, Trump proposed increased scrutiny of foreign companies listed in the US, particularly focusing on their ownership structures. He also called for greater caution regarding US pension and endowment fund investments in Chinese high-tech sectors. These developments have raised concerns among investors, with some anticipating potential disruptions to AI supply chains.
“Given the significant outperformance in AI-related Chinese stocks this year, the uncertainties introduced by Trump could lead to some profit-taking,” said Charu Chanana, chief investment strategist for Saxo Markets. “If these orders go into effect, there is a risk that AI supply chains could be impacted.”
Despite the recent selloff, the Hang Seng Tech Index is still up approximately 25% for the year. Analysts have been optimistic about the Chinese tech sector’s potential, especially after Chinese President Xi Jinping’s meeting with tech business leaders. However, a prolonged slide in tech stocks could dampen the growing optimism and shake investor confidence in the sector’s future growth.
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