(Bloomberg) — Chinese stocks slumped on Friday, extending this week’s losses, with investors citing a lack of fresh catalysts after a blistering rally.
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The Hang Seng China Enterprises Index (^HSCE) slid as much as 2.7%, headed for its steepest two-day drop since Nov. 12. Technology shares bore the brunt of the selling after powering the market for most of the year. Xiaomi Corp. (XIACY) and Alibaba Group Holding Ltd. (9988.HK) lost more than 2.5% each. Onshore, the CSI 300 Index dropped 1.5%.
Bearish calls have also started to crop up, with BofA Securities warning this week of a “meaningful correction soon.” Morgan Stanley sees volatility ahead, noting that onshore investor sentiment has cooled. The caution suggests the market has priced in the positives that emerged from the National People’s Congress earlier this month, when authorities pledged to support economic expansion and AI development.
While tech earnings have been largely positive so far, share reactions have been mixed as upbeat expectations were already priced in. This year’s rally has also taken valuations above historical averages. The Hang Seng China gauge is trading at 10 times its forward earnings estimates, compared to a five-year average of 8.5.
Profit-taking pressure is rising on Hong Kong-listed tech stocks following their earnings, Alvin Ngan, an analyst at Zhongtai Financial International Ltd., wrote in a note. “The valuation gap between Chinese and US tech stocks has significantly narrowed after a correction in US stocks.”
Onshore investor sentiment has also dropped in the past week, reflected in lower trading volumes, Morgan Stanley strategists led by Laura Wang wrote in a note. They expect to see some volatility in the earnings season.
The Hang Seng Tech Index dropped more than 3% on Friday. Even with that, the gauge is about 26% higher for the year.
Food delivery giant Meituan shares slipped ahead of earnings due Friday. BYD Co. — one of this year’s biggest stock winners — tumbled more than 8% in Hong Kong before results due next week.
Earlier this week, Xiaomi Corp. hiked its 2025 delivery target, while Tencent’s revenue rose a better-than-projected 11% in the final quarter and net income almost doubled.
The coming week may offer investors some fresh cues as a spate of companies — including from some of China’s biggest banks and consumer firms — are due to report their results.
