Shares in Shanghai and Hong Kong fell on Wednesday as discouraging US economic data stoked fears of a double-dip recession. The Shanghai Composite Index fell 2 percent to 2,596.6 points, surrendering some of its gains from Tuesday, while the Hang Seng ended 0.1 percent lower at 20,635 after bouncing off a near-term support level.
Large cap shares such as integrated oil firm PetroChina and top Chinese lender ICBC, which are considered more sensitive to global economic conditions than other mainland stocks, led declines in Shanghai as investors pared positions and took profits from the broader market's rally of more than 10 percent since early July. PetroChina's Shanghai-listed shares fell 1.4 percent whle its Hong Kong shares slid 0.8 percent. Industrial and Commercial Bank of China, the world's biggest bank by market value, fell 1.5 percent in Shanghai and was unchanged in Hong Kong.
ICBC was also pressured after sources told Reuters that it could issue 25 billion yuan of convertible bonds next week, part of a flood of capital raising expected from Chinese banks and other firms over the coming months.
The index has recently tested but failed to break through the 2,680 barrier, partly as liquidity conditions have deteriorated to some extent due to too much share and bond supply coming into the market. This week, there will also be a combined 87.5 billion yuan in bonds offered by the Ministry of Finance, local governments and Central Huijin Investment Co, the largest shareholder of the country's state-controlled banks.
In Hong Kong, the Hang Seng index briefly broke through near-term support around 20,586 level, where a gap opened on the upside on July 23, but later rebounded. Volume has remained stubbornly weak on the Hong Kong stock exchange, suggesting investors remain cautious about stepping back into the volatile market. This week fixed-line operator PCCW and luxury watch distributor Hengdeli Holdings announced secondary share offerings shortly after announcing interim results.
Further weakness in Hong Kong could see the Hang Seng dip below a trendline support opening up the possibility of the index falling back to its May lows. Defensive large caps such as telecom companies such as China Unicom, which rose 1 percent, and Hutchison, up 1.3 percent, supported the broader market.
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