Chinese equities tumbled on Friday, putting the country's benchmark indexes on course for their steepest weekly decline in two-and-a-half years, as investors grew concerned that the massive initial public offering (IPO) of memory chipmaker CXMT could absorb significant market liquidity. According to Reuters, fears that several more large domestic IPOs are in the pipeline further weighed on investor sentiment, particularly in the technology sector.
Hong Kong shares also came under heavy selling pressure, led by technology stocks, as renewed tensions linked to the Iran conflict added to broader market uncertainty.
AI and Chip Stocks Lead Market Decline
China's blue-chip CSI300 Index dropped 2.5% by the midday break, touching its lowest level in three months, while the Shanghai Composite Index fell 1.6%. Both benchmarks are on track for their weakest weekly performance since late December 2024.
Technology stocks bore the brunt of the sell-off as investors worried that large fundraising exercises could divert liquidity away from the secondary market. Reuters reported that the CSI AI Index and the CSI Integrated Circuits Index each plunged around 6%, while the STAR Chip Index declined 5%.
The Hang Seng Index in Hong Kong fell 2%, marking its biggest one-day decline in nearly four months. AI, biotechnology and semiconductor stocks were among the biggest losers.
CXMT IPO Raises Liquidity Concerns
Market participants have increasingly focused on the impact of CXMT's $8.6 billion IPO, the largest in Asia so far this year. Although retail subscriptions exceeded the shares available by more than 200 times, the oversubscription level was considerably lower than that seen in most recent Chinese IPOs, highlighting growing investor caution.
Analysts believe the IPO has prompted investors to shift funds away from existing technology stocks, intensifying selling pressure across the sector.
The expectations of additional blockbuster listings by companies such as robotics maker Unitree and memory chip producer Yangtze Memory Technologies have heightened concerns that fresh equity offerings could continue to drain liquidity from China's stock market.
Some fund managers believe investors are locking in gains after a strong rally in companies expected to benefit from expanded semiconductor investment linked to CXMT's fundraising.
The recent surge in AI-related stocks had already pushed valuations to elevated levels, making the sector vulnerable to profit-taking amid signs of tighter liquidity.
State Media Attempts to Calm Markets
In an apparent effort to reassure investors, China's state-backed Shanghai Securities Journal argued that large IPOs do not alter the broader direction of the equity market. Reuters reported that the publication maintained that liquidity in China's financial system remains ample and suggested investors need not be overly concerned about the impact of the CXMT listing.
Despite those reassurances, investor sentiment remained fragile as concerns over liquidity, elevated technology valuations and geopolitical risks continued to weigh heavily on both mainland Chinese and Hong Kong equities.
