Mainland China stocks rise on AI optimism; Zhongji Innolight eyes $7bn IPO

Mainland Chinese equities pushed higher at midday, driven by a renewed surge in semiconductor and metal stocks, while Hong Kong’s benchmark index retreated on heavy selling in major technology names.

The blue-chip CSI300 Index rose 0.7% and the Shanghai Composite Index gained 0.5%. Across the border, the Hang Seng Index fell 0.8%, dragged down primarily by a nearly 6% drop in Tencent Holdings.

AI hardware and metals lead mainland rally

Investor focus remained fixed on China's artificial intelligence supply chain. The tech-focused STAR50 Index climbed 1.5%, while semiconductor shares posted a 3.4% gain. This recovery follows a sharp correction over the past month that erased a portion of massive earlier gains. The STAR50 had previously surged 175% between April and June, and the CSI300 rallied 14% over the same period, driven by enthusiasm for AI and hardware companies.

Non-ferrous metal stocks staged a notable comeback, jumping nearly 5% after lagging the broader market for the past month. Capital clearly rotated out of defensive plays during the session. Consumer staples fell 0.9% and financials edged down 0.1%.

Deleveraging cycle nears end, UBS says

The latest rebound carries significant weight for portfolio managers assessing whether the recent volatility represents a healthy consolidation or the start of a deeper reversal. UBS analysts provided a constructive outlook, noting they "expect the broader A-share market and technology sector earnings to continue improving despite recent sharp fluctuations."

Crucially, the brokerage pointed to structural improvements in market health. "The rapid decline in margin financing balances suggests the recent deleveraging cycle in China's equity market may be largely complete," UBS said. A completed deleveraging cycle typically removes a major overhang that triggers forced selling during market dips.

Zhongji Innolight targets $7 billion in Hong Kong

The primary market is now testing whether institutional investors share this renewed risk appetite. Zhongji Innolight, a Chinese optical components manufacturer, filed plans to raise as much as HK$55.05 billion, or roughly $7 billion, through a Hong Kong listing.

If successful, the offering would rank as Asia’s second-largest share sale this year. However, secondary market investors appeared cautious about the dilution. Zhongji Innolight's Shanghai-listed shares slipped 1.5% during Wednesday's trading.