Shanghai Composite rebounds after steepest weekly drop in months

China's Shanghai Composite Index clawed back some ground on Monday, rising 0.85% to close at around 3,796 points after enduring its steepest weekly decline in months. The partial recovery followed a punishing week in which the benchmark shed 5.81% — a drop of 232 points — to close Friday at 3,764.15, its lowest level since August 2025.morningstar+2

The rebound, however, did little to ease broader anxieties across Asian markets, where a global rout in semiconductor and artificial intelligence stocks continued to exact a heavy toll. South Korea's Kospi fell 4.46% on Monday to 6,516 points, extending a slide that has now carried the index more than 28% below its record close of 9,114.55 reached on June 22.tradingeconomics+1

A Chip Rout Spreads Across Asia

The selloff originated in doubts over the sustainability of AI-related capital spending, which has driven semiconductor valuations to levels that some analysts have compared to the dot-com era. The Philadelphia SE Semiconductor Index logged its steepest weekly loss in over a year during the week ending July 18, tumbling more than 18% in July alone, according to Reuters.forbes+1

Asian markets bore the brunt on Friday, with equity benchmarks in Japan and Taiwan falling as much as 6%. Japan's Nikkei 225 confirmed correction territory, dropping more than 10% from its all-time high close on June 25. Samsung Electronics and SK Hynix, the two dominant memory chipmakers on South Korea's exchange, have been at the center of the selling pressure, with foreign investors steadily cutting their exposure to the sector.investinglive+2

Oil Prices and Earnings Week Add to Uncertainty

Escalating conflict in the Middle East compounded the risk-off mood. Rising oil prices, driven by tensions involving the United States and Iran, fanned fears of a resurgence in inflation and weighed on sentiment across the region. Investors also faced a packed week of major technology earnings, with Alphabet ↗ 0.24%, Intel ↘ 7.89%, and Tesla ↘ 2.08% among companies set to report.reuters+2

Wall Street futures pointed to a tentative recovery on Monday, with Nasdaq 100 futures rising around 0.4% and S&P 500 futures edging up 0.2%. Europe's STOXX 600 also nudged higher, led by a 0.8% gain in tech stocks.reuters+1

China's Broader Challenges

The Shanghai Composite's slide to an 11-month low caps a difficult stretch for Chinese equities, which began 2026 on a strong note. The index had climbed above 4,083 points in early January, its highest level in a decade, buoyed by sustained policy support and a migration of household savings into capital markets. But slowing economic growth — China's second-quarter GDP expansion decelerated from the first quarter's 5% pace — combined with geopolitical tensions and the global tech rotation have eroded those gains.globaltimes+1

Morgan Stanley has characterized the semiconductor pullback as a "mid-cycle adjustment rather than a peak," while Wall Street's 12-month price forecasts still project recovery for many chip stocks. Whether that optimism holds may depend on earnings results due this week.forbes