Investors pulled back from Chinese stocks early Tuesday as the market's strong start to 2026 ran into overheating concerns and broad premarket weakness across major tech and electric vehicle names.
China Rally Cools, Tech Stocks Slip
Chinese tech industry barometer Alibaba Group Holding Ltd (NYSE:BABA) stock gave up some of its Monday gains on Tuesday.
Alibaba rivals Baidu, Inc. (NASDAQ:BIDU), PDD Holdings Inc. (NASDAQ:PDD), and JD.com, Inc. (NASDAQ:JD) also noted a decline in their stock prices in Tuesday premarket trading.
Chinese EV stocks, including NIO Inc. (NYSE:NIO), XPeng Inc. (NYSE:XPEV), Li Auto Inc. (NASDAQ:LI), and ZEEKR Intelligent Technology Holding (NYSE:ZK), were also down on Tuesday premarket.
China's early-2026 stock rally lost steam on Tuesday as record trading and rising margin lending fueled concerns that the market may be overheating.
The CSI 300 Index fell 0.6%, while Hong Kong benchmarks gave back earlier gains as the session wore on, Bloomberg reported on Tuesday.
Turnover on the Shanghai and Shenzhen exchanges jumped to a fresh record of 3.65 trillion yuan ($523 billion), topping Monday's pace.
AI "Tech Renaissance" Keeps Alibaba In Focus
Despite the broader pullback, investors have pushed stocks higher this year on optimism around China's "tech renaissance."
AI progress and policy support from Beijing boosted chipmakers and other hardware names, helping the tech-heavy Star 50 Index climb more than 9% so far in January.
A busy pipeline of IPOs from domestic chip and AI companies added to the upbeat tone.
Alibaba is capturing renewed investor interest as it delivers visible breakthroughs across its artificial intelligence ecosystem, spanning cloud, open-source models and consumer applications.
Alibaba stock has risen by more than 106% over the past year, driven by increased confidence in its AI and cloud initiatives.
The stock also benefited after reports suggested China may soon allow limited imports of Nvidia Corp.'s (NASDAQ:NVDA) H200 AI chips.
Overheating Signals Flash Caution
But momentum indicators started flashing caution. The Shanghai Composite's 14-day relative strength index reached 81 on Monday, marking its most overbought reading since August.
Warnings about speculative "rocket stocks" also weighed on sentiment.
Zhifeng of Shanghai Chengzhou Investment Management said multiple efforts to cool the market—including risk warnings from listed companies—have begun to take effect.
The CSI 300 still shows a 2.8% gain for 2026, and the Hang Seng Tech Index is up more than 6%.
UBS executives struck a constructive tone at the bank's China conference in Shanghai, citing innovation, broader AI adoption, and potential inflows as tailwinds, SCMP reported on Tuesday.
Analyst Zhang Qiyao said February often delivers solid returns and that short-term pullbacks may create dip-buying opportunities.
Price Action: In premarket trading Tuesday, Alibaba shares slipped 1.07% to $164.52, according to Benzinga Pro. PDD Holdings led losses, falling 5.25%, while Baidu declined 3.38%. JD.com shares were down 1.33%.
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