Mainland and Hong Kong stocks closed down on Tuesday as investors took profits on this year's outperformers, rotating into defensive sectors during a lull in corporate earnings and policy signals.

The benchmark Hang Seng Index closed down 205 points, or 0.79 percent, at 25,952.

The Hang Seng China Enterprises Index shed 0.92 percent to end at 9,173 while the Hang Seng Tech Index lost 1.76 percent to close at 5,818 in spite of media reports that China increased subsidies that cut energy bills by up to half for some of the country's largest data centres.

The benchmark Shanghai Composite Index was down 0.41 percent at 3,960 while the Shenzhen Component Index closed 1.71 percent lower at 13,175.

The combined turnover of these two indexes was nearly 1.92 trillion yuan, down from 2.11 trillion yuan on Monday.

Shares related to forestry and banking led the gains, while those related to non-ferrous metals and lithium mines suffered major losses.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, lost 1.96 percent to close at 3,134.

China's top-performing A-share sectors in the first three quarters have historically struggled to maintain momentum into the final stretch of the year, UBS analysts said in a note.

With few corporate disclosures expected over the next four to five months, investors are rotating out of this year's winners, narrowing sector valuation gaps and driving a return to more typical pricing, they said.

"Some investors expect the value stocks to catch up in relative performance in the last two months of 2025 and anti-involution could become the main trade theme in the first quarter of 2026," said UBS analysts.

Anti-involution refers to China's pushback against excessive competition.

Artificial intelligence and biotech stocks have led this year's rally in China's equity markets, but their momentum has waned in recent weeks. The tech-focused Star50 Index was up 40 percent this year.

The CSI Banks Index rose more than 2 percent while the Healthcare Index and the Non-ferrous Metals Index fell 1.9 percent and 3.2 percent, respectively. (Reuters/Xinhua)