Hong Kong shares suffered their worst day in almost three weeks on Thursday after a private sector survey showed that China's manufacturing contracted for an eighth-straight month, deterring investors and keeping trading interest low. Chinese developer Evergrande Real Estate Group Ltd posted its biggest drop in almost nine months - falling as much as 20 percent during the session - after the company was targeted by short-sale specialist Citron Research, traders said.
The stock recovered to close 11.4 percent lower after the company said in a statement during the midday trading break that allegations by Citron group that it used accounting tricks were "untrue". The Hang Seng Index slid 1.3 percent to 19,265.1, its worst loss since a 2 percent loss on June 4, while the China Enterprises Index of the top Chinese listings in Hong Kong finished down 1.6 percent.
In the mainland, the large cap-focused CSI300 Index fell 1.6 percent at 2,512.2, the lowest close since April 9. It ended the week down 2.2 percent. Mainland Chinese markets are closed for a public holiday on Friday. Losses accelerated after the HSBC Flash Purchasing Managers Index, the earliest monthly indicator of China's industrial activity, fell to a seven-month low of 48.1 in June from a final reading of 48.4 in May.
Money supply conditions, which tend to correlate with the performance of mainland Chinese stock markets, was also cited as a factor. China's benchmark money rates reached a nearly four-month high on Thursday, as a deposit outflow from big banks caused them to scale back interbank lending. Trading volume in Shanghai consequently stayed low. It was 18 percent below average despite picking up from Wednesday's levels. In Hong Kong, turnover also improved but finished just shy of its 20-day average.
"The China flash PMI came in lower than the month before, so that was slightly disappointing," said Jackson Wong, Tanrich Securities' vice-president for equity sales in Hong Kong. Evergrande has been one of the top performing Chinese property names, and was up 39 percent this year, before Thursday's plunge. Citron Research, based in Beverley Hills, California, is known for targeting companies with research exposing what it claims to be financial irregularities.
Also hurting were Chinese oil majors, a sector seen as a proxy for China's economic growth. PetroChina Co Ltd lost 1.5 percent each in Hong Kong and Shanghai. CNOOC Ltd slumped 3.2 percent in Hong Kong, partly tracking global oil prices, which slumped to an 18-month low. Chinese computer giant Lenovo Group dived 9.4 percent, after a Taiwanese newspaper reported that the company has halved its personal computers shipment growth projection.
But analysts contacted by Reuters expressed doubts about the report, saying that it is not Lenovo's usual practice to provide guidance that involves such precise figures. Prior to Thursday, Lenovo had climbed 12 percent from its May 29 low. Thursday's close was its lowest since June 6. Chinese chemical specialist Dongyue Group Ltd slumped 14.6 percent after warning its profits for the first half are "expected to decrease considerably" from the year before.
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