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Mainland stocks retreat from recent highs

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Internet leaders Alibaba ( BABA ) and Baidu ( BIDU ) post narrower gains

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Market remains cautious about fundamentals

(Adds details, updates closing prices and quotes)

By Jiaxing Li

HONG KONG, Feb 13 (Reuters) - Chinese tech stocks

reversed their rally on Thursday after reaching multi-year

highs, as AI-driven gains slowed amid traders locking in profits

and renewed concerns over the country's economic challenges.

The Hang Seng Tech Index closed nearly 1% lower,

after rising 4.2% to its highest point since 2022 earlier in the

day. The city's benchmark Hang Seng Index weakened 0.2%

to retreat from a four-month high.

Among the biggest decliners, chipmaker SMIC slid

4.1% and rival Hua Hong Semiconductor tumbled 5.2%.

Shares of internet companies pared early gains. Alibaba ( BABA )

closed 2.6% higher after briefly touching a three-year

high following Chairman Joe Tsai's announcement that the

e-commerce giant will partner with Apple ( AAPL ) on AI for

iPhones sold in the China market.

Baidu ( BIDU ) finished 5.7% higher, well off its intraday

peak of 12%, following news that the company would offer its AI

chatbot Ernie Bot free of charge from April 1.

Mainland stocks also weakened, with China's blue-chip CSI300

Index and the Shanghai Composite Index both

slipping by around 0.4% each to retreat from their highest

levels so far this year.

"Technology innovation alone cannot resolve China's

structural economic imbalance or cyclical deflationary

problems," analysts at Morgan Stanley said in a note on

Thursday.

"As we go through the policy vacuum period until the March

NPC, concerns about the macro slowdown are likely to reduce the

broad beta opportunity."

Still, Hong Kong's benchmark index has advanced 8.8% so far

this year, making it the best performer among major markets in

the region, largely due to DeepSeek-triggered tech rally and

China's market rescue measures last month.

Meanwhile, the Hang Seng Tech index has rallied over 60%

since the September trough, as it may finally be beginning to

slough off years of underperformance, driven by government

crackdowns on tech giants and a dour broader mood, said Nick

Ferres, chief investment officer at Vantage Point Asset

Management in Singapore.

"We don't know if the Alibaba AI model is superior, or if

they can monetise the platform, but the stock trades on 10 times

earnings, net cash on balance sheet and is buying back shares,"

Ferres said.

There is a strong case for potential re-rating, especially

for Hong Kong-listed Chinese stocks, in which the valuation is

much more attractive, Raymond Ma, chief investment officer,

Mainland China and Hong Kong at Invesco, said in a note.

Re-rating opportunities would come when the market reassess

China's innovative capabilities and corporate earnings growth

following the AI breakthrough, he added.