Hong Kong shares plunged to their lowest level since April 1 on Tuesday after Shanghai stocks fell the most in a year in a broad sell-off triggered by Beijing's latest round of monetary austerity measures.
Mainland banks and insurers led the slide in Hong Kong, with China Construction Bank tumbling 4.9 percent and China Life giving up more than 5 percent after China announced its most severe credit tightening step this year.
"Today's sell-off was probably overdone but there are fears that China's credit tightening will slow profit growth and more companies will hit the market to raise money in future which is bad for the stock markets," said Howard Gorges, vice chairman at South China Brokerages. The Hang Seng Index closed down 1,026.66 points, or 4.21 percent, at 23,375.52. It touched a low of 23,343.19 earlier in the day.
Forty-two of the index's 43 components ended in the red. Port operator Cosco Pacific was suspended in the morning, pending an announcement concerning its bid for concession rights at Greece's Priaeus port. Turnover on the mainboard rose to HK$82.16 billion ($10.53 billion) from Friday's HK$58.62 billion.
The China Enterprises Index of mainland companies fell 5.35 percent, led by refiner Sinopec Corp and its subsidiary, Sinopec Shanghai Petrochemical, after oil prices rose $12 dollar in the previous three sessions.
The Shanghai Composite Index closed 7.73 percent lower at 3072.33. Sinopec Corp tumbled 5.9 percent to HK$7.76 after local media reported that Beijing had signalled it was unlikely to remove price controls on refined oil products. Asia's largest refiner has been posting record losses as it is sandwiched between rising international crude prices and the regulated prices of petroleum products in China.
Sinopec Shanghai Petrochemical plunged 9.9 percent as investors took profits from a recent rally in the stock. Asia's biggest oil producer, PetroChina, which also has refining operations, slid 5.5 percent as oil prices climbed to $135 per barrel after Monday's brief reprieve.
UK's biggest bank HSBC, one of the most actively traded stocks in the morning session, fell 2.7 percent after securities firm Lehman Brothers said it expected to post a $2.8 billion second-quarter loss, renkindling fears that the US credit crises is yet to run its course.
The other index heavyweight, China Mobile, tumbled 3.9 percent in line with the broad market. China Netcom, which suffered heavy losses following restructuring announcements last week, fell a further 9.6 percent while China Unicom slid 8.3 percent.
Hutchison Telecommunications rose 1.3 percent to HK$11.10 after the company said it would launch the 3G version of Apple's best-selling iPhone in Hong Kong on July 11.