Chinese markets cooled on Friday after touching decade highs, as renewed U.S.–China friction triggered profit-taking and dented investor confidence.
The CSI300 Index fell 1.3% and the Shanghai Composite slipped 0.5%, reversing gains from Thursday’s 10-year peak. In Hong Kong, the Hang Seng Index extended its losing streak to a fifth session the longest since March.

What Happened

The pullback followed Beijing’s decision to tighten export controls on several key materials — including rare earths, lithium battery components, and graphite anodes in a move widely interpreted as retaliation for U.S. lawmakers’ push to expand semiconductor export bans on China.

The announcement hit tech and energy stocks hardest:

Semiconductor Index fell 4.1%

AI sector dropped 3.4%

EV shares tumbled up to 5.2%

Battery giant CATL slid 6.3%, and CALB lost 8.6%

Why It Matters

The correction highlights the fragile balance between China’s market optimism and geopolitical reality.
After months of policy support and liquidity injections from Beijing, sentiment had been steadily improving. But every flare-up in Sino–U.S. trade tensions reminds investors that China’s recovery remains vulnerable to external shocks.

Export restrictions on strategic materials signal that Beijing is willing to weaponize its tech supply chain, even at the cost of short-term market volatility. As Citi analysts noted, both powers appear to be “strengthening leverage ahead of a potential leaders’ summit,” raising the risk of a renewed trade standoff.

Analysts at Yintai Securities said market momentum is “shifting from liquidity-driven to profit-driven,” suggesting investors are becoming more selective.
Tech-heavy indexes, which surged earlier in the year, are now seeing rotation out of overheated sectors and into more defensive plays.

In Hong Kong, fund managers are also bracing for foreign outflows, with geopolitical jitters and slowing global demand weighing on sentiment.

What’s Next

Investors are now watching for China’s trade data due Monday, which could either reassure markets or deepen the pullback.
If exports and imports continue to contract, expectations for further policy easing will rise.

Analysts expect sideways consolidation in the fourth quarter, with periodic spikes in volatility as global elections, interest rate moves, and trade diplomacy shape sentiment.

With information from Reuters.