Shanghai stocks slipped on Wednesday as profit taking and concerns about shrinking profit margains offset a pick up in Chinese manufacturing activity that helped boost other Asian markets. Hong Kong shares staged a small technical rebound, with the benchmark Hang Seng index rising 0.4 percent.
But the Shanghai Composite fell 0.6 percent as small caps succumbed to profit taking after posting big gains in recent weeks. The CSI500, an index of small-cap mainland stocks, fell 1.3 percent. Small-cap stocks have outperformed the broader market, with the CSI500 up over 32 percent since early July versus a 13 percent gain for the Shanghai Composite. Hong Kong's benchmark Hang Seng Index ended at 20,623.83 points, rising with other Asian markets, but gains were limited by the late slide in Shanghai.
Despite encouraging signs of stabilisation in a pair of manufacturing surveys in China, analysts cautioned that the robust domestic economy would have to battle the headwinds of soft external demand, especially from the United States. While Chinese companies have reported generally strong interim profits, upward revisions to second-half earnings forecasts have remained muted, suggesting the outlook for the rest of 2010 remains cloudy.
Operating margins fell year-over-year despite interim net profits growing over 40 percent on average for Chinese companies that have reported results so far, suggesting the results period was "deceptively mediocre", said Macquarie. Foxconn International shares fell 4.6 percent, extending their yearly losses to about 45 percent, as investors dumped shares on growing worries about its prospects. Foxconn shares have slumped 11.5 percent in the past two sessions after the world's largest contract phone maker slipped deeper into the red in the first half as it fights rising costs, falling handset prices and wage pressures.
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