Chinese shares fell to their lowest since the start of the year on Monday after an official purchasing managers' survey showed a slower rebound in factory activity than expected, suggesting headwinds remain for the world's second largest economy. But property stocks advanced after tightening measures unveiled by authorities in three cities over the weekend appeared less strict than investors had feared.
The large-cap CSI300 index lost 0.1 percent to its lowest closing level since mid-January. The Shanghai Composite Index also dropped 0.1 percent, closing at its lowest point since late December. Volume in Shanghai was the lowest since mid-December ahead of the two-day Tomb Sweeping Day holiday that begins on Thursday. Hong Kong markets were closed on Monday.
China's official manufacturing purchasing managers' index (PMI) released by the National Bureau of Statistics rose to an 11-month high of 50.9 in March, above the 50-point level that indicates expansion, but below a Reuters poll consensus forecast of 52.0. Financial stocks, seen as a proxy for the macro-economy, lagged the index. The financial sub-index lost 0.3 percent. China Merchants Bank fell 1.8 percent, and Pingan Insurance gave up 1.9 percent.
Wen Lijun, equity analyst at Nanjing Securities, said there was little prospect for a broader market rally before macro-economic data for the first quarter comes out on April 15. But she said the market may have over-reacted to February data, which showed weaker than expected consumer spending and factory output. If GDP growth comes in above 8 percent, it could revive confidence and spark a rally.
Property counters were stronger on Monday with China Vanke rising 2.2 percent and state-owned Poly Real Estate up 3.0 percent. The property sub-index gained 1.0 percent. "Except Beijing and to some extent Shanghai, it seems local governments are not wholeheartedly enforcing the previous cabinet's property tightening measures which were rushed out at end-February by the then outgoing government," Lu Ting, head of Greater China economics for Bank of America-Merrill Lynch in Hong Kong, wrote in a note to clients.
"The 'detailed measures' announced by local government this weekend reflect a tug-of-war between the local and central government (especially the previous one)," Ting wrote, noting that local governments depend on land sales and property transaction taxes for fiscal revenue. Closely-watched unofficial data released in the afternoon showed that average home prices in China's 100 biggest cities rose for the tenths straight month in March, highlighting policymakers' concerns about affordability.