China shares had their worst day in a more than a week on Tuesday, with retail investors spooked by a mainland news report that suggested institutional investors who previously invested in exchange-traded funds had sold into strength last week.
The CSI300 Index of the top Shanghai and Shenzhen listings closed down 0.4 percent at 2,292.2, its worst loss since October 29. The Shanghai Composite Index shed 0.4 percent, its worst loss since October 26.
The state-run China Securities Journal reported on Tuesday that redemptions last week in ETFs tracking mainland markets topped 2 billion units for only the fifth time this year, despite the fact that last week was the best in a month for mainland markets.
China shares were headed for their worst day since October 26 and weighing on the Hong Kong market, with retail investors worried by a state media report about substantial redemptions of the mainland's exchange-traded funds (ETF) last week.
Turnover in both mainland and Hong Kong markets on Tuesday remained subdued ahead of the US presidential elections later in the day and the mainland's once-in-a-decade political transition that starts with the 18th Party Congress meeting on Thursday.
The Hang Seng Index went into the midday trading break down 0.5 percent, while the China Enterprises Index of the top Chinese listings in Hong Kong shed 0.7 percent.
"If redemptions were so high last week when the market had a good week, it shows that institutional investors still lack confidence in the market and retail investors have reacted accordingly," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu.
The state-run China Securities Journal reported on Tuesday that last week was the fifth one this year in which redemptions by institutional investors in ETFs tracking mainland markets topped 2 billion units.
This was despite the fact that last week was the best one in a month for the Shanghai Composite and CSI300 indices. They rose 2.5 percent and 2.6 percent respectively.
Chinese financials and growth-sensitive names, among the stronger recent outperformers, suffered some of Tuesday's the bigger percentage losses. In a measure of the broad weakness, only 13 of the 300 components on the CSI300 Index were higher at midday.
China Railway Construction slipped 3 percent from a 14-month high in Shanghai while losing 1.9 percent in Hong Kong. It is still up 34.6 percent in Shanghai and 89.7 percent in Hong Kong for the year.
This compares to the 18.7 percent rise for the Hang Seng Index, 7.6 percent gain for the China Enterprises Index and the 3.4 percent loss on the CSI300 Index in 2012.
Shares of Industrial and Commercial Bank of China (ICBC), the country's largest lender, shed 0.6 percent in Hong Kong and 1.3 percent in Shanghai.
Other key underperformers in Hong Kong include HSBC Holdings Plc, down 1.7 percent after Europe's largest bank said a US fine for violating federal anti-money laundering laws could cost significantly more than $1.5 billion and is likely to lead to criminal charges as well.
China Merchants Holdings slumped 5.8 percent to HK$24.40, its lowest since October 17 after an undisclosed investor raised $84 million after selling 27 million shares in a deal priced between HK$24.20 and $25.10, representing a discount of 6.6 percent to Monday's HK$25.90 close.
Kweichow Moutai lost 2.6 percent in Shanghai despite mainland media reporting that the producer of Chinese premium liquor denied rumours that it had inventories almost equal to two years supply and could face a collapse in its product prices.
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