China’s Stock Rally Loses Momentum Amid Overheating Concerns

China’s stock rally cooled Tuesday after record turnover and surging margin loans suggested the market may be getting overheated, Bloomberg News reported.

Turnover on the Shanghai and Shenzhen stock exchanges climbed to another record of 3.65 trillion yuan ($523 billion). (Photo: 千里走单骑 Wikimedia Commons)

The CSI 300 Index closed down 0.6%, while benchmarks in Hong Kong pared gains in the afternoon session.

Turnover on the Shanghai and Shenzhen stock exchanges climbed to another record of 3.65 trillion yuan ($523 billion), topping Monday’s tally.

This came after the value of margin trades rose 1.8%—the most in three months—to 2.65 trillion yuan.

Stocks had a stellar start to the year as investors were drawn to China’s tech resurgence.

Advances in artificial intelligence and Beijing’s policy support fueled gains in chip stocks and other hardware makers, with the tech-focused STAR 50 Index up more than 9% so far in January.

A wave of initial public offerings by local chipmakers and AI firms added to the optimism, but warning signs have begun to emerge.

The 14-day relative strength index for the Shanghai Composite rose to 81 on Monday, making it the most overbought since August. Warnings of irrational hype around rocket stocks, which had posted sharp gains, also weighed on sentiment.

“Multiple measures to cool the market are taking effect,” including risk warnings by listed companies, said Fu Zhifeng, chief investment officer at Shanghai Chengzhou Investment Management Co.