Despite Global Headwinds, China's 'Slow Bull' Markets Weather Corrections

Amid global markets spooked by a resumption of attacks in the Middle East and rising bond yields driving up the cost of borrowing, Chinese stock markets maintained a mostly steady keel with minor corrections.

The benchmark Shanghai Composite Index edged down 0.3 percent on Friday to wrap up the week with a 0.6-percent loss. The Shenzhen Component Index saw a fall of 3.1 percent for the week, while the tech-heavy ChiNext fell 4.4 percent. Shanghai's Nasdaq-style STAR Market 50 Index lost 5.1 percent in the past five trading days despite profit-taking in two companies that delivered stellar listing debuts – Changxin Memory Technologies (CXMT) in July and Unitree Robotics in August.

"Over the past few months, volatility has intensified across global capital markets, and the A‑share market has also gone through several phases of correction," said Eric Lin, head of APAC Research at UBS. "The latest correction largely represents risk unwinding following earlier market gains, rather than a fundamental reversal of the trend."

Lin said he sees that trend nearing an end, with positive factors underpinning stable capital market operations that are building at an accelerated pace.

"As a result, the foundations for a market recovery keep strengthening, which will support the continuation of the so‑called 'slow bull' scenario in the second half of the year," Lin said at a UBS forum earlier this week.

CXMT slumped 6.5 percent and Unitree tumbled 9.4 percent, but that hasn't dented investor enthusiasm toward a pipeline of Chinese companies following in their IPO footsteps. Chinese tech startup Moonshot AI, developer of the Kimi large-language models, has confidentially ‌filed for a Hong Kong initial public offering, seeking to raise US$3 billion in as early as the fourth quarter. Ligent Technologies, a Chinese maker of optical communications equipment, also plans to launch an IPO in Hong Kong possibly in mid-September, expected to raise HK$6.2 billion (US$791 million).

"Despite volatility across the tech sector in July and August, we remain highly confident in the growth narrative of artificial intelligence and progress toward domestically built Chinese tech supply chains," Lin said, also noting increasing investor interest in sectors like health care, non-ferrous metals and finance.

Hong Kong's Hang Seng Index rose 0.26 percent for the week.

On Tuesday, Chinese global discount fashion retailer Shein closed flat in its debut in Hong Kong, going on to drop 21.4 percent in the four days since its listing. The US$1.7 billion IPO valued Shein at US$26.5 billion, three-quarters lower than its 2022 peak. Investors have been wary amid concerns over its profit outlook and regulatory criticism of its business practices.

Across Asia, Japan's Nikkei fell 2.1 percent this week, and South Korea's Kospi retreated 1.5 percent.

On Wall Street, major stock markets closed lower on Friday after stronger-than-expected jobs growth figures removed one factor for the Fed to keep rates steady or lower them as inflation remains above the Federal Reserve target. US Treasury yields rose on the news. Sharply higher debt yields spread across global bond markets this week, spooking markets and raising borrowing costs for governments, companies and consumers. For the week, the broad S&P 500 index edged up 0.1 percent, while the Nasdaq notched a 0.4 percent gain.