Chinese stocks were largely flat on Wednesday as investors took profits in technology stocks linked to the artificial intelligence boom, moving in traditional sectors such as consumer and financial stocks, looking for weaker-than-expected second-quarter economic growth. According to a Reuters report, Hong Kong equities outperformed their mainland peers.

By the midday break, China’s blue-chip CSI 300 index was little changed, while the Shanghai Composite index slipped 0.1%. In Hong Kong, the Hang Seng index advanced 1.5%, supported by gains in large technology companies.

Weak GDP data dampens market sentiment
China’s economy expanded 4.3% year-on-year in the second quarter, missing market expectations, data showed investor sentiment remained resilient. Soft domestic demand and the economic impact of an Iran war-related oil shock offset strength in industrial production and exports, according to Reuters.

Rather than triggering a broad-based sell-off, the disappointing data reinforced a continuing shift in market leadership, with investors favoring defensive and value-oriented sectors over high-growth technology stocks.

Traditional sectors lead gain
Consumer-related stocks outperformed after June retail sales rose 1%, boosting optimism over domestic consumption. China’s consumer staples index rose 3.6%.

Property shares also gained around 5%, even as the sector continues to struggle. Official data showed that real estate investment fell 18% in the first half of the year, reflecting prolonged weakness in the industry.

Financial stocks also attracted investors’ interest as part of a broader rout in traditional sectors.

Chip stocks slide on profit booking
Technology shares came under pressure as investors took advantage of what was expected to be Asia’s biggest initial public offering this year.

China’s tech-focused STAR50 index fell 3.7%. ChangXin Memory Technologies (CXMT) plans to raise about 57.9 billion yuan (about $8.55 billion) through its Shanghai listing, excluding any over-allotment option.

The weakness reflected a cooling rally in AI-related semiconductor stocks that have been among the market’s strongest performers in recent months.

Hong Kong tech shares rebound
Despite weakness in mainland chip stocks, Hong Kong-listed technology giants rose 1.4%, helping lift the broader Hang Seng index.

The divergence between mainland AI-related shares and Hong Kong technology names highlighted the differing positions of investors in the markets.

UBS sees continued interest in Chinese equities
European investors continue to show strong interest in Chinese equities, with artificial intelligence a dominant investment theme despite recent volatility and profit-taking, according to a note from UBS strategists cited by Reuters.

Investors are increasingly focusing on companies that stand to benefit from China’s efforts to localize its technology supply chain, expand domestic capital spending and strengthen strategic industries, strategists said. They also noted that market participants continue to favor sector leaders with attractive valuations.

Market Outlook
Wednesday’s trading underlined the growing fragmentation in China’s equity markets. As concerns over slow economic growth persist, investors are increasingly favoring sectors linked to domestic consumption and financial stability, although enthusiasm for AI-related stocks is cooling after a strong rally. Sector rotation is expected to be the main driver of market performance in the coming weeks, with the focus on major IPO activity and policy developments.