China shares sink to 5-month low, Hong Kong also weaker

Sun Jan 5, 2014 11:36pm EST

Related Topics

* HSI -0.6 pct, H-shares -1.5 pct, CSI300 -2.3 pct

* Weak HSBC China flash services PMI adds to data gloom

* Financials, property-related, railway lead losses

By Clement Tan

HONG KONG, Jan 6 (Reuters) - China shares touched five-month lows early on Monday, weighing on Hong Kong markets, after a survey showing weak services sector growth in the mainland added to concerns of slowing growth.

Both markets have now erased gains from a key policy meeting in November that was seen as Beijing's boldest commitment to reform in decades. Investors are now counting the cost of those reforms, which they fear will involve a deeper crackdown on shadow banking as Beijing reins in credit growth.

There are also rising concerns that the resumption of initial public offerings in the mainland -- with nearly 30 approved so far -- will further sap tight money supply. Rates are expected to stay elevated ahead of the Lunar New Year, which falls at the end of January.

At midday, the CSI300 of the leading Shanghai and Shenzhen A-share listings was down 2.3 percent. The Shanghai Composite Index sank 1.9 percent. Both are now languishing at their lowest since August.

The Hang Seng Index shed 0.6 percent to 22,680.8 points, while the China Enterprises Index of the top offshore Chinese listings in Hong Kong slid 1.5 percent and is now at its most technically oversold level since July.

Losses in both markets came in relatively robust volumes. In Shanghai, about 12 stocks declined for every counter that rose, while about 4 stocks fell for every stock that advanced.

"I think it's quite clear this is not yet the bottom. There's going to be more losses ahead," said Hong Hao, chief strategist at Bank of Communication International.

On Monday, China Construction Bank (CCB) sank 1.4 percent in Hong Kong and 2.5 percent in Shanghai. Both its A and H-share listings have now tumbled more than 11 percent from December peaks.

Calls for China to accelerate financial reforms grew louder last week after figures showed its indebted local governments owe nearly $3 trillion in a debt build-up that some analysts called alarming.

The HSBC/Markit services sector Purchasing Managers' Index (PMI) dropped to 50.9 in December from 52.5 in November -- its lowest since August 2011 -- with new business expansion the slowest in six months.

Chinese property-related and railway sectors were standout underperformers, while there were gains for the Macau casino and Chinese Internet sectors.

China Vanke slid 4.3 percent in Shenzhen to its lowest since February 2012, while Poly Real Estate tumbled 5.1 percent in Shanghai to a more than two-year trough. In Hong Kong, China Overseas Land fell 2.6 percent.

Authorities had announced moves to streamline mortgage financing provided by the country's Housing Provident Fund. Revisions in second-tier Wuhan city closed a previous loop-hole on mortgages on second homes, according to a client note from Deutsche Bank dated Jan. 3.

China Railway Group tumbled 5.4 percent in Hong Kong and 4.6 percent in Shanghai. The official Xinhua news agency reported on Sunday that its president had passed away.

In Hong Kong, Galaxy Entertainment climbed 1.3 percent to a record high, while Tencent Holdings rose 1.1 percent.

Wing Hang Bank shed 1.4 percent before trading in its shares were suspended in late morning. Reuters had reported on Friday that Singapore's Oversea-Chinese Banking Corp (OCBC) had begun exclusive talks to purchase the Hong Kong family-run lender at about $5.3 billion.

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