Chinese shares in Shanghai as well as Hong Kong finished lower on Thursday as a survey showed that manufacturing in China contracted for the first time in a year, adding to slowdown concerns even as inflation pressures remain.
Cyclical stocks, in particular energy names, were hit after the HSBC flash purchasing managers' index (PMI) showed China's factory sector shrank in July while input prices rebounded sharply.
The Shanghai Composite Index fell 1.0 percent, its fourth-straight loss. The index was further weighed down by high money market rates, which limit the ability of brokerages and funds to borrow money from banks to deploy in stock markets.
The China Enterprise Index of the top 40 Hong Kong-listed Chinese shares, also known as H-shares, closed down 0.5 percent, underperforming the 0.1 percent dip on the Hang Seng Index. "It's kind of funny. Every-body's waiting for CPI to peak...but inflation will still remain high for a while after that," said Larry Jiang, chief investment strategist at Guotai Junan Securities in Hong Kong.
"If that's the case, then there isn't any compelling reason to enter the market right now, especially since the Chinese government won't change their position anytime soon."
Oil giants PetroChina Ltd and Sinopec Corp were the top drags on the Shanghai Composite, with China Shenhua Energy Co Ltd plus China's top two insurance companies, Ping An and China Life rounding the top five.
In Hong Kong, the 0.1 percent slip in the Hang Seng Index left it at 21,987.3 points. Losses in Chinese oil heavyweight CNOOC Ltd outweighed gains in majors China Mobile and conglomerate Hutchison Whampoa .
These last two stocks posted gains of about 2 percent apiece on healthy volumes on a day of below-average turnover and rose above their respective 200-day moving averages, suggesting they were poised for further gains.
"Theoretically Hutchison should be exposed to more debt, but interestingly, its operation in Europe is not so tied to economic outlook," said Cusson Leong, Credit Suisse's head of Hong Kong research, adding that there are different drivers for each of their global divisions.
As Hutchison and China Mobile jointly account for 10 percent weight in the benchmark, further gains by both could be enough to lift the index out of the sideways trend it has been stuck in for the past week.
CNOOC shares fell 3.6 percent in volumes more than triple its 30-day average, hitting a five-month low partly on worries that it might have paid too much for a Canadian oil sands acquisition.
Analysts at Jefferies maintained their "underperform" rating on the stock and said the acquisition of a problematic asset is further evidence that CNOOC's domestic assets are depleted.
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