SHANGHAI: China stocks dropped on Wednesday following a strong rally in the previous session, with investors staying cautious in anticipation of additional stimulus measures from Beijing, while Hong Kong shares saw a modest increase.

China stocks jump on chip shares’ rally

• China’s blue-chip CSI300 Index dropped 0.4% by the lunch break while the Shanghai Composite Index lost 0.3%. Hong Kong benchmark Hang Seng traded 0.2% higher.

• “Ample liquidity in the banking system, and a relative lack of credit demand, means that interest rates will likely remain low and could fall further. Therefore, investors have generally remain cautious about jumping into riskier assets,” said Frederic Neumann, chief Asia economist at HSBC.

• “While equities have been volatile of late, an improving growth outlook, especially with stepped-up stimulus measures should ultimately offer support.”

• Onshore stocks surged on Tuesday, marking their largest gain in more than two months, as regulators pledged more support to arrest the market slump. However, many market participants expect a period of policy vacuum until the National People’s Congress convenes in March.

• As geopolitical tensions escalated, domestic investors tended to favor sectors that are independently innovative.

• Hong Kong-listed shares of Semiconductor Manufacturing International Corp, China’s biggest chipmaker, surged nearly 7% to their highest levels since July 2020.

• The surge followed the announcement on Monday that the US would further restrict exports of artificial intelligence chips and technology.

• Rick Waters, former China policy official at the US Department of State, said at a UBS conference that Washington and Beijing are trying to find an equilibrium but there will be lots of volatility until that is reached.

• The incoming US administration is broadly hawkish on China but implementation details are still being debated, he said.

• Some social media concept stocks jumped, as over half a million “TikTok refugees” flock to China’s RedNote. Hangzhou Onechance Tech Corp rose a daily maximum of 20%.