Hong Kong, China shares slip, bad loan fears hit banks
Caution ahead of China GDP data due on Friday -- widely expected to be weak -- also weighed on the market but infrastructure-related stocks gained after PremierWen Jiabao said China must maintain reasonable investment growth.
"People are piling into cement and railways stocks after the Chinese Premier's comments, but it's mainly short term players chasing the rally," said Jackson Wong,Tanrich Securities' vice-president for equity sales.
By midday, the Hang Seng Index dropped 0.4 per cent to 19,321.4 points, its lowest level this month with the benchmark now having given up all gains made on the back of a EU deal to help the region's banks.
The China Enterprises Index of the top Chinese listings in Hong Kong shed 0.7 per cent. Onshore Chinese markets were mixed. The large cap-focused CSI300 Index ended flat at midday, but the Shanghai Composite Index slipped 0.2 per cent in lacklustre turnover.
Chinese banks lost ground after Caixin magazine said China Construction Bank (CCB) would be owed 3 billion yuan if a troubled Hangzhou-based conglomerate client defaults on outstanding debt estimated at 8 billion yuan.
CCB, the mainland's second-largest lender lost 3 per cent while larger rival, Industrial and Commercial Bank of China (ICBC) fell 1.9 per cent and Bank of China shed 1.7 per cent.
Although Chinese banks are trading near historically low valuations, investors have shunned the stocks.
On top of outstanding balance sheet concerns, Beijing's recent interest rate cuts also involved cuts to its lending and deposit rates that are expected to squeeze banks' interest rate margins and hurt their profitability.
Amid worries that the global economic slowdown will hit corporate earnings, underscored by revenue warnings from several U.S. firms in recent days, ChinaSouthern Airlines , the country's largest airline by fleet size, warned of a 50 per cent slump in first-half profits.
In the space of weeks, at least half a dozen Chinese companies have warned that earnings will be softer than expected as the world's second-biggest economy grows at the weakest pace in three years.
China Southern Airlines lost 0.9 per cent in Hong Kong and 2.2 per cent in Shanghai.
Among infrastructure stocks, China Railway Construction jumped 1.6 per cent in Hong Kong and 3.2 per cent in Shanghai while Anhui Conch Cement rose 2.5 per cent in Hong Kong and 3 per cent in Shanghai.
"We are still awaiting more details on how Beijing plans to push infrastructure investment which will give greater clarity on profitability for that sector, but otherwise sentiment remains quite weak," said Wong at Tanrich Securities. — Reuters