Global market: Chinese stocks sink to one-month lows as Middle East tensions trigger a broad selloff

Chinese equities fell sharply on Monday, with major benchmark indices dropping to their lowest levels in about a month as escalating geopolitical tensions in the Middle East dampened investor sentiment and sparked widespread profit-taking. According to Reuters, concerns over the worsening conflict between the United States and Iran weighed heavily on risk assets across the region.

The Shanghai Composite Index declined 1.5% to 3,934.74 by the midday break, marking its lowest level since June 8. The blue-chip CSI300 Index also slipped 1.3%, hovering near a one-month low amid broad-based selling pressure.

Broad-Based Selling Hits High-Growth Sectors

Losses were widespread across sectors, with some of the market's recent outperformers witnessing sharp declines. The defence sector dropped 5%, while rare earth stocks tumbled 5.6%. Satellite-related companies also came under pressure, falling 3.6%.

Technology stocks surrendered part of their recent gains as investors reduced exposure to riskier assets. The CSI AI Index declined 1.9%, while the CSI Semiconductors Index lost nearly 2%.

Small-cap stocks were hit particularly hard, with the CSI 2000 Index plunging 4.1%, putting it on course for its steepest single-day decline since March.

Defensive Sectors Outperform
Despite the broader market weakness, investors rotated into defensive sectors. Banking, energy and consumer staples stocks posted modest gains ranging between 0.3% and 1.5%, reflecting a shift toward relatively safer investments during heightened market uncertainty.

Geopolitical Tensions Weigh on Risk Appetite
Market sentiment deteriorated after renewed military exchanges between the United States and Iran. Tehran reportedly launched missile and drone attacks targeting U.S. assets in multiple countries and announced another closure of the Strait of Hormuz, raising concerns over global energy supplies and prompting a broader selloff in Asian equities.

Analysts See Limited Scope for Sharp Recovery
Market participants remain cautious as weak domestic demand continues to weigh on China's economic outlook. Analysts at Nanhua Futures said in a note that subdued domestic demand, coupled with ongoing profit-taking in previously rallied sectors, is likely to keep the market trading within a range rather than supporting a sustained rebound.

The brokerage also expects blue-chip stocks to retain their relative advantage during periods of market volatility, citing their defensive characteristics. Meanwhile, it believes small- and mid-cap stocks could continue to face valuation adjustments if market weakness persists.

Hong Kong Markets Also Under Pressure
The weakness extended to Hong Kong, where the Hang Seng Index edged 0.1% lower, while the Hang Seng Tech Index fell 0.8% as technology shares remained under pressure.

Focus Shifts to Key Economic Data
Investors are now turning their attention to a series of key Chinese economic releases scheduled this week, including trade data and second-quarter gross domestic product (GDP) figures, which are expected to provide fresh insights into the health of the world's second-largest economy.

A Reuters poll of 20 economists forecasts that China's exports likely increased 18.2% year-on-year in dollar terms in June, easing slightly from the 19.4% growth recorded in May. The upcoming data will be closely watched for indications of whether external demand and domestic economic activity remain resilient amid rising global uncertainties.