China shares had their biggest one-day loss in three weeks on Monday, prodding Hong Kong markets into the red as weakness in Chinese financial majors dragged the Hang Seng Index below a chart support, pointing at more losses ahead. Turnover in Hong Kong neared lows for the year, while trading volume in Shanghai was 20 percent below its 20-day average. Investors were cautious ahead of a slew of global economic data and debt auctions later this week.
The Hang Seng Index closed down 0.5 percent at 18,897.5, above the day's bottom but below the 50 percent Fibonacci retracement of its rise from October lows to February highs, at about 18,963. The large-cap focused CSI300 dived 2.2 percent, its worst daily performance since a 2.8 percent on June 4, to close at the lowest since March 30. The China Enterprises Index of the top Chinese listings shed 1.3 percent.
"Things might be cheap, but growth is deteriorating at too fast a speed for value investors to justify getting into the market now," said Benjamin Chang, chief executive officer of Hong Kong-based LBN Advisors, which manages more than $400 million of assets in two China funds. On Monday, shares of China's two largest lenders were the top two drags on the Hang Seng Index. Industrial and Commercial Bank of China (ICBC) fell 1.9 percent and China Construction Bank (CCB) lost 1.5 percent.
Chinese property-related counters were the biggest losers in mainland markets after a government think tank said Beijing should raise home ownership taxes to target speculators who had recently driven property prices to record highs. Shenzhen-listed China Vanke lost 3.1 percent, while Shanghai-listed Poly Real Estate slumped 4.9 percent. Anhui Conch Cement tumbled 5.1 percent in Shanghai.
A-share property weakness spread to H-share counterparts. Evergrande Real Estate pared gains to end up 2.6 percent, recovering some of its 17 percent it lost last week after a short seller accused it of fraud, bribery and financial irregularity. Evergrande, China's second-largest developer by sales, had said on Friday it may buy back some of its shares and take legal action against Citron Research for the allegations made in a report last week.
Shares of Lenovo Group Ltd fell by as much as 6 percent to a more than four-month intraday low on market concern over the outlook for the PC market. The stock ended down 4.9 percent to its lowest close since February 8. Strength in defensive plays limited losses in Hong Kong. Local utilities play Power Assets gained 1.2 percent, as did China Mobile, the mainland's biggest mobile operator.But China Mobile faltered at its HK$82.80 resistance level, finishing at HK$82.15 on Monday, but there are signs this could be breached in the near term as investors rotate into defensive names as global markets remain volatile.
Power Assets, which is down 1.4 percent this year, outperformed the market in 2011, gaining 17.2 percent as the Hang Seng Index tanked 20 percent. There are signs that investors are again seeking the relative safety of defensive plays such as Power Assets. In a note to clients on Monday, Bank of Communications (BoComm) International Securities said the divergence between the performance of cyclicals and defensive sectors in Hong Kong has "once again reached an extreme." Hong Hao, BoComm's chief strategist, added that it is now "time for a change" of sector leadership, warning that rising earnings estimates of cyclicals also suggest that these stocks have largely priced in the reflation in China, and "thus warrant caution.