Onshore Chinese shares suffered their worst loss in almost two months on Monday, hit by non-banking financials on deflated hopes of more "formal" monetary easing after the Chinese premier's latest comments did not allude to that possibility. Chinese brokers and insurers were also among the heavier losers in Hong Kong. Both sectors are heavily invested in mainland Chinese stock markets, which look set for a third-straight annual loss.
China Premier Wen Jiabao's comments over the weekend pledged new measures aimed at stabilising export growth, but did not involve any mention of "formal" policy easing. In a biweekly note to clients on Monday, CICC strategists said it would be difficult for the A-share market to reverse its underperformance in a weak economy without more aggressive monetary policy.
"It sure doesn't look like Beijing will move to cut reserve ratios or rates anymore from here. That will hurt A shares more and weakness there will weigh on Hong Kong," said Jackson Wong, vice-president of equity sales at Tanrich Securities. The CSI300 Index of the top Shanghai and Shenzhen listings ended down 2.1 percent at 2,228.2, the lowest close since March 2009. Monday's losses were also its worst since July 9.
The Shanghai Composite Index shed 1.7 percent, while the China Enterprises Index of the top Chinese listings in Hong Kong lost 1.4 percent. Turnover in both markets stayed lacklustre. The Hang Seng Index slipped 0.4 percent to 19,798.7, finishing just above chart support at its 200-day moving average, now at around 19,764.8, a technical level it has finished above on all but one session since July 31.
China Life Insurance, the biggest mainland insurer, shed 3.5 percent in Hong Kong, while declining 3.6 percent in Shanghai. It is expected to post its first half earnings on Tuesday. Its sector rival Ping An Insurance reported last Thursday a better than expected 9.4 percent rise in first half profit. On Monday, it lost 2.6 percent in Hong Kong and 4.9 percent in Shanghai.
Chinese brokers were also weak despite a state media report on Monday that Beijing was ready to expand a pilot securities margin trading programme, that would likely bolster sagging volumes in mainland markets. Haitong Securities, among the larger brokerages in the mainland, lost 4.4 percent in Hong Kong and 5.2 percent in Shanghai despite posting late on Friday first-half earnings that were largely in line with expectations.
Further aggravating sentiment, China's industrial sector in July posted a sharp drop in profit, offering a fresh sign that slackening domestic and external demand has further weighed on corporate earnings. Automobile producers are among those sectors susceptible to inventory-related issues. Warren Buffet-backed automaker BYD Co Ltd slipped 2.8 percent in Hong Kong ahead of its first half corporate earnings later in the day.
Down almost 21 percent in 2012, it is still trading at a 51 percent premium to its historical 12-month forward earnings multiple but a 56 percent discount to its 12-month forward price-to-book multiple, according to Thomson Reuters StarMine. China Construction Bank (CCB), the country's second-largest lender, slipped 0.8 percent in Hong Kong after posting first half earnings on Sunday that bettered expectations. China Petroleum and Chemical Corp (Sinopec) was the only one of three Chinese oil majors to rise on Monday. It jumped 3.4 percent in Hong Kong after posting a smaller-than-expected drop in first half profits on Sunday.