China, HK stocks ease as investors turn cautious on geopolitical risks

China and Hong Kong equities slipped on Monday as investors turned cautious on heightened tensions between Beijing and Tokyo over the weekend and opted to lock in profits following a recent rally.

** China’s blue-chip CSI300 Index 3399300 was down 0.7% by midday, while the Shanghai Composite Index 000001 lost 0.4%. Hong Kong’s benchmark Hang Seng Index HSI slipped nearly 1%.

** So far this year, the Hang Seng Index has gained 30% and the CSI300 has climbed 17%.

** The row erupted after Japan Prime Minister Sanae Takaichi told Japanese lawmakers that a Chinese attack on Taiwan could threaten Japan’s survival and potentially trigger a military response, something officials had long avoided airing in public for fear of provoking Beijing, which claims the self-ruled island.

** A senior Japanese diplomat will head to China on Monday, according to Japanese media, as Tokyo tries to calm an escalating diplomatic spat over Taiwan that is straining relations between the East Asian neighbours.

** Shares of Chinese software maker Linkage 688588, which derives most of its sales from Japan, fell as much as 4% to their lowest level since July 24.

** The CSI Rare-Earth Index 9930598 was roughly flat even after U.S. Treasury Secretary Scott Bessent said in remarks that aired on Sunday that a rare-earths deal between Washington and Beijing will “hopefully” be done by Thanksgiving.

** Bucking the sombre mood, shares of onshore artificial intelligence firms 9930713 edged 0.5% higher, while new energy vehicle firms 3399976 rose 1.2%.

** China stocks have been range-bound this month after key benchmarks rose nearly 20% this year.

** “We view 2026 as a year of stabilisation after 2025’s high returns, Morgan Stanley analysts said in a note.

** “Index upside is modest with moderate EPS (earnings per share) growth and valuation settling at a higher regime, as China reclaims its footing in the global tech race and trade tension abates,” the analysts said.

** The CSI Defense Index 3399973 was up 1.2%.

** Tech majors traded in Hong Kong HHSTECH were down 1.2%.