Market Woes: China's AI Rally Faces Sustainability Concerns Amid Fed Fears

China and Hong Kong stocks opened lower as investor concerns over the sustainability of China's AI rally intensified. Market reactions came after strong U.S. jobs data increased fears of Federal Reserve rate hikes. Key markets, including the Shanghai Composite and Hang Seng, recorded notable declines.

On Monday, China's stock markets, in tandem with Hong Kong, started the week with declines, echoing regional trends. The dips were driven by increasing investor anxiety over the endurance of the recent AI-fueled rally, especially following robust U.S. jobs reports that raised the specter of imminent Federal Reserve interest rate hikes.

Key indices such as the CSI300 and Shanghai Composite saw significant drops of 2.4% and 2.2%, respectively, as the technology sector, particularly semiconductor and chip supply chain stocks, took hits. Shares in Zhongji Innolight, an Nvidia supplier and key player in China’s AI surge, plummeted by 4% in early trading, reflecting broader investor skepticism.

The tech-studded STAR50 Index tumbled 4.8%, with domestic semiconductor stocks losing over 5%. On Wall Street, a remarkable nine-week advancement ended abruptly, as tech stocks reported the steepest daily loss since April 2025, ignited by apprehensions of a potential shift to a hawkish monetary stance from the Federal Reserve.