Chinese mainland stocks advanced on Thursday, led by optical communications and technology companies, as strong AI demand forecasts from U.S. artificial intelligence firms reinforced expectations for robust demand for AI hardware and computing infrastructure, according to Reuters. The CSI300 index gained 0.5% by lunch break, while the Shanghai Composite Index rose 0.4%, with the CSI 5G Communications Index advancing nearly 3% and the technology-focused STAR50 Index gaining about 2%. Optical module makers were among the biggest gainers, with Eoptolink Technology climbing 4.2%, TFC Optical Communication jumping 10.5%, and Zhongji Innolight rising 5.5%. The positive sentiment was also supported by a nearly 14% rise in U.S. optical communications company Lumentum in New York trading, following upbeat forecasts from U.S.-listed CoreWeave and Super Micro Computer that pointed to strong demand for AI computing capacity.
China's consumer inflation eased to 0.5% year-on-year in July, coming in below the 0.8% forecast and marking a six-month low, according to latest reports from China's National Bureau of Statistics. The Shanghai Composite responded positively, closing up 0.7% at 3,966.59, as investors looked for fresh support for domestic demand. On a monthly basis, consumer prices declined 0.1%, compared with expectations for a 0.2% increase and a 0.3% fall in June. The decline was primarily attributed to lower food prices and slower growth in non-food costs. Additionally, producer price inflation moderated to 3.5% from 4.1% in the previous month, also under expectations of 3.8%, indicating a gradual easing in price pressures across the economy. However, producer prices declined 0.7% month-on-month, following a 0.3% fall in June, suggesting factory-gate price momentum weakened despite remaining positive on an annual basis.
The softer-than-expected inflation data reinforced market expectations that authorities could maintain an accommodative policy stance to support economic growth, as reported by Business Standard. The July numbers suggested price pressure is fading, giving Beijing and the People's Bank of China more room to cut rates or encourage banks to lend, without worrying as much about stoking prices. Policymakers have also reiterated their commitment to accelerating infrastructure spending to counter weak domestic demand, even as exports and manufacturing activity remain relatively resilient. This policy approach is viewed as supportive for market sentiment and economic growth prospects. The softer inflation readings reflect easing energy-related cost pressures and relatively subdued domestic demand, with Chinese households continuing to face uncertainty from the prolonged property-sector downturn while manufacturers deal with excess capacity, intense price competition and limited ability to pass higher costs on to consumers.
Financial stocks on the mainland were broadly steady after the People's Bank of China said on Wednesday that it would maintain an appropriately loose monetary stance and introduce practical measures when necessary, as reported by Reuters. However, the central bank stopped short of signalling immediate reductions in policy rates or banks' reserve-requirement ratios. In Hong Kong, the Hang Seng Index was up 0.1%, with technology majors edging up 0.3%, although Tencent Holdings fell 3.8% to a two-week low after reporting record quarterly negative free cash flow and increased capital spending on artificial intelligence investments. The decline came after investors weighed concerns over weak consumption and the possibility that increased AI spending could take longer to generate corresponding returns. Materials stocks fell 3.6%, weighed down by gold miners, with China Gold International Resources dropping 5.9%. Overall, the session highlighted the growing influence of the global AI investment cycle on Chinese technology stocks, while concerns over consumer demand and investment returns kept broader market gains in check.
