Shanghai stock benchmark briefly slips below 4,000 as Mideast conflict escalates

China and Hong Kong stocks tumbled on Thursday, joining a broader decline across Asia, as risk appetite was further dampened after a major escalation in the U.S. and Israel's war with Iran.

The Shanghai Composite index .SSECbriefly slipped past the 4,000 floor for the first time since January, before closing down 1.4% at 4,006.55.

The blue-chip CSI300 index .CSI300 dipped 1.6%.

Risk sentiment took a beating globally after Tehran fired missiles at oil and gas targets throughout the Gulf, including key LNG sites in Qatar, sending oil prices sharply higher.

Around the region, MSCI's Asia ex-Japan stock index .MIAPJ0000PUS was weaker by 2.8%.

"Market volatility will stay elevated for now, and there's little visibility about how the conflicts will unfold. Both have dampened investors' willingness to deploy capital and kept them on the sidelines," said Cusson Leung, chief investment officer at KGI.

The firm, however, continues to favour Chinese equities, as their lower correlation with global markets positions them as an attractive diversification opportunity, he noted.

Declines were across the board, with the CSI SWS Non-Ferrous Metal Index .CSISNMIM and the CSI SH-SZ-HK Gold Industry Index losing more than 6% to rank among the biggest losers following the gold price plunge.

The CSI 300 Energy Index .CSI000908 jumped 4.2% following the surge in oil prices.

In Hong Kong, the benchmark Hang Seng Index .HSI lost 2%, and the Chinese H-share index, the Hang Seng China Enterprises Index .HSCE, fell 1.6%.

Internet giant Tencent 700.HK tumbled nearly 7%, the worst single-day decline since April last year, after the firm announced a higher AI investment in 2026 after chip curbs hit capex plans.

-Reporting by Jiaxing Li in Hong Kong; Editing by Harikrishnan Nair and Eileen Soreng/Reuters