Hong Kong shares fell 3.1 percent on Monday as more grim news on the global economy poured in and investors bailed out of many China shares, disappointed that Beijing has not announced fresh economic stimulus measures.
"Investors are waking up to the cruel reality that property prices and corporate profits in Hong Kong are heading down and the second and third quarter of this year may be even worse...Its the same story across Asia," said Peter Lai, director at DBS Vickers.
The benchmark Hang Seng Index ended 416.72 points lower at 12,861.49, after rallying on Friday on speculation that China's central bank would announce fresh interest rate cuts at the weekend in a bid to revive the rapidly slowing economy.
Shares of top European lender HSBC Holdings continued to weigh on the index, kicking off February on a weak note after sixth consecutive months of decline as investors worry about possible dividend cuts and a capital-raising at the bank. The stock fell 3.8 percent to HK$58.50.
HSBC was also pressured by, concerns about delays to an expected US plan to bolster the country's banking industry. CNBC reported US policymakers had yet to reach a consensus on how a government-run "bad bank" would work and that the idea to shift toxic assets off bank balance sheets may not move forward.
Market watchers see the benchmark index slipping to 12,000 points by the end of the month with weak corporate earnings overshadowing optimism over a massive US economic stimulus programme, which is expected to be approved by mid-February. Mainboard turnover fell to HK$35.7 billion from HK$44.1 billion on Friday.
The weak market participation took a toll on shares of bourse operator Hong Kong Exchanges & Clearing, which dropped 3.6 percent to HK$65.55. Li & Fung, which supplies largely made-in-China consumer products to US retail giant Wal-Mart, fell 3.8 percent after data on Friday showed the world's largest economy shrank at its fastest pace in 27 years during the fourth quarter.
Private-sector business activity in Hong Kong contracted for a seventh month in January as the volume of new orders plunged amid weak global demand, prompting companies to cut more jobs, a purchasing managers' survey showed on Monday. A similar Chinese survey showed business activity in China continued to contract last month, though there was some tentative evidence that it may be pulling out of a deep dive.
CHINA SHARES TANK ON LACK OF FRESH SUPPORT: The China Enterprises Index of top mainland firms fell 3.1 percent as fresh stimulus moves from Beijing failed to materialise. Bank of Communications dropped 4.4 percent while Ping An Insurance slid 4.8 percent.
"Investors are concerned that the rally in the Chinese market is not sustainable as the government has yet to announce any new policy support measures and the weakness in major global markets will eventually catch up with Shanghai too," said Patrick Shum, strategist with Karl Thomson Securities. The Shanghai Composite Index gained 1.1 percent as it emerged from a week-long Lunar New Year holiday.