China's benchmark CSI 300 index entered bear-market territory on Thursday, closing 1.8% lower to confirm a 20% decline from its June peak after 10 consecutive weeks of losses. The index, which tracks 300 of the largest stocks listed in Shanghai and Shenzhen, is down 2.6% so far this week, according to LSEG data. Bloomberg linked the drop to fading stimulus hopes, weak earnings and mounting worries over the global artificial-intelligence trade, with approximately $2.4 trillion in Chinese equity market value erased since a May peak as a protracted slump in consumption and doubts over AI company profitability weighed on sentiment [Source: Bloomberg].
The sell-off in mainland China spread to Hong Kong, where gauges for major Chinese companies and technology firms also plunged, with the monthslong decline showing few signs of abating. The pressure came against a backdrop of a sharp Wall Street retreat on Thursday: the Nasdaq Composite pulled back 2.6% to 26,008.86 and the S&P 500 shed 1.21% to close at 7,663.43, with the tech-heavy index suffering its worst session since June [Source: CNBC]. A nearly 7% plunge in chipmakers sent the Nasdaq 100 to its worst day since June. META slipped about 7% even as it exceeded revenue expectations, while AMD fell more than 8% and MU and NVDA dropped 6% and 4% respectively. Meta Platforms' plans to boost capital spending reignited fears that tech firms will issue more debt to finance the artificial-intelligence buildout [Source: Bloomberg]. JPMorgan traders noted that chatter increased over renewed Iran kinetic-risk following the US mid-term elections, and cited a still-fragile narrative around AI financing concerns [Source: CNBC].
Fears that Israel and the United States would restart attacks against Iran sent oil prices higher and drove investors toward safe-haven assets [Source: NBC News]. Equity-index futures for Japan, Australia and South Korea all fell, pointing to a second straight decline for a regional stock gauge after it dropped Thursday to its lowest since late July. The 10-year US Treasury yield stood at 5.13% as of 21 October, according to Valdrans data. Investment-grade companies, led by megacap technology, have sold about $1.7 trillion of bonds this year, up approximately 29% from a year earlier, as the AI build-out has leaned heavily on bond markets [Source: Bloomberg]. Nvidia CEO Jensen Huang said on CNBC that capital to finance the AI investment boom was becoming 'scarce' due to higher interest rates and a glut of existing spending commitments [Source: NBC News].
Chinese firms have been suffering from declining profit growth amid intense competition that has eroded margins. Shaun Rein, managing director at China Market Research Group, expects further selling pressure as geopolitical uncertainty, concerns over an AI bubble and deteriorating consumer confidence weigh on investor sentiment [Source: CNBC]. China's large base of retail investors could exacerbate market volatility, as individual investors are prone to exiting the market faster during periods of uncertainty. The FOMC rate decision is scheduled for 28 October, per the Valdrans economic calendar.
Sources: Bloomberg, CNBC, NBC News, Financial Times, Valdrans Data