Chinese equities fell sharply on Monday, with major benchmark indices falling to their lowest levels in nearly a month as rising geopolitical tensions in the Middle East dented investor sentiment and fueled widespread profit-taking. Concerns about a worsening conflict between the United States and Iran are weighing heavily on risk assets across the region, according to Reuters.

The Shanghai Composite Index fell 1.5% to 3,934.74 by the midday break, marking its lowest level since June 8. The blue-chip CSI300 index also slipped 1.3%, near a one-month low amid broad-based selling pressure.

Broad-based sales affect high-growth sectors
Losses were broad across all sectors, with sharp declines in some of the market’s recent outperformers. The defense sector fell 5%, while rare earth stocks fell 5.6%. Satellite-related companies also came under pressure, falling 3.6%.

Technology stocks surrendered part of their recent gains as investors reduced exposure to riskier assets. The CSI AI index fell 1.9%, while the CSI Semiconductors index fell nearly 2%.

Small-cap stocks were hit particularly hard, with the CSI 2000 index plunging 4.1%, putting it on track for its steepest one-day decline since March.

Defensive fields outperform

Despite widespread market weakness, investors turned to defensive sectors. Banking, energy and consumer staples stocks posted modest gains of between 0.3% and 1.5%, reflecting a shift toward relatively safe investments amid heightened market uncertainty.

Geopolitical tensions accentuate risk appetite
Market sentiment worsened after renewed military exchanges between the United States and Iran. Tehran reportedly launched missile and drone strikes targeting US assets in multiple countries and announced another closure of the Strait of Hormuz, raising concerns over global energy supplies and prompting a broad sell-off in Asian equities.

Analysts see limited scope for a sharp recovery
Market participants remain cautious as weak domestic demand weighs on China’s economic outlook. Analysts at Nanhua Futures said in a note that with lower domestic demand and continued profit-taking in previously rallying sectors, market trade is likely to remain range-bound rather than supporting a sustained rebound.

Brokerages also expect blue-chip stocks to maintain their relative gains during periods of market volatility, citing their defensive characteristics. Meanwhile, he believes small and mid-cap stocks may continue to face valuation adjustments if market weakness continues.

Hong Kong markets also under pressure
The weakness extended to Hong Kong, where the Hang Seng Index was down 0.1%, while the Hang Seng Tech Index fell 0.8% as technology shares remained under pressure.

Focus on key economic data
Investors are now turning their attention to a series of key Chinese economic releases scheduled for this week, including trade data and second-quarter gross domestic product (GDP) figures, which are expected to provide new insights into the health of the world’s second-largest economy.

A Reuters poll of 20 economists forecast that China’s exports could rise 18.2% year-on-year in dollar terms in June, a slight softening from the 19.4% growth recorded in May. The upcoming data will be closely watched for signs of whether external demand and domestic economic activity remain resilient amid growing global uncertainties.