November 2, 2017 / 4:57 AM / 9 months ago

China stocks fall as economy, liquidity concerns arise; Hong Kong soft

* SSEC -0.6 pct, CSI300 -0.4 pct, HSI -0.2 pct

* Impact of higher yields is being felt in stock market-analyst

* Investors eye nomination of next Fed Chair

SHANGHAI, Nov 2 (Reuters) - China stocks weakened on Thursday morning, weighed down by banking and real estate shares, as investors who liked the third-quarter reporting season now anticipate a possible economic slowdown and tighter liquidity before year-end.

The Hong Kong market was also soft, as investors await a fresh catalyst to restart a rally that appears to be losing steam.

China’s blue-chip CSI300 index was down 0.4 percent, to 3,979.75 points at the end of the morning session, while the Shanghai Composite Index shed 0.6 percent, to 3,376.11 points.

With China’s generally upbeat third-quarter earnings in the rear mirror, investors set their eyes toward a possible slowdown in the economy as they weigh the impact of government’s tough anti-corruption campaign and continuing deleveraging efforts.

The rapid rise in bond yields since mid-October “is the result of a sudden change in expectations toward the economy, and fresh assessment of the government’s determination to deleverage,” wrote Qiao Yongyuan, Shanghai-based strategist at CIB Research.

In the stock market, the impact of rising yields “is being gradually felt,” he said.

But a correction in China’s A-shares could be seen as a bargain-hunting opportunity for some overseas investors.

Foreign holdings of Chinese shares exceeded 1 trillion yuan ($151.1 billion) for the first time in September, central bank data showed on Thursday, as capital market deregulation and MSCI’s China inclusion fuelled demand for Chinese blue chips.

Most sectors sagged on Thursday. An index tracking China’s biggest lenders sank 0.8 percent and the property subindex lost 0.9 percent.


Shares in Hong Kong slipped slightly.

The Hang Seng index dropped 0.2 percent, to 28,552.47 points, while the Hong Kong China Enterprises Index lost 0.1 percent, to 11,622.31.

Investors eagerly await the formal nomination of the next U.S. Federal Reserve chair.

The White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen’s term expires in February, a source familiar with the matter said on Wednesday.

Reporting by Samuel Shen and John Ruwitch; Editing by Richard Borsuk

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