Chinese Stocks Falter Amid AI-Driven Market Volatility

Chinese shares witnessed a notable decline on Wednesday following an initial strong rally powered by artificial intelligence (AI) stocks. The Shanghai Composite index closed down by 1.76%, marking its most significant daily loss since April 2025, as investor caution over the sustainability of these gains grew.

The blue-chip CSI300 index saw a 1.49% decrease, while Hong Kong's Hang Seng index fell by 1.27%, and the Hang Seng Tech dropped by 1.47%. The losses were spearheaded by declines in the property and biotech sectors, despite AI stocks initially surging due to an 'AI Plus' initiative from the State Council boosting optimism.

Economic concerns were fueled by data indicating the third consecutive month of declining industrial profits in China, highlighting demand and deflation issues. Analysts at UBS Global Wealth Management stressed the uncertainty surrounding the equity rally's longevity. Investors are shifting focus to the forthcoming Fourth Plenary in October, hoping for supportive economic measures. Despite promising developments in the AI sector, second-quarter earnings show persistent weaknesses among software and hardware firms.

(With inputs from agencies.)