Hong Kong and China shares stretched losing streaks on Monday, hurt by fears of tighter money supply and contrasting manufacturing surveys that compounded the uncertainty over the strength of the economic recovery. While the official manufacturing purchasing managers' index (PMI) for May came in better than expected, the HSBC final PMI reading was the lowest since October 2012 and lower than the flash reading.
The Hang Seng Index and the China Enterprises Index of the top Chinese lsitings in Hong Kong each shed 0.5 percent. The CSI300 of the leading Shanghai and Shenzhen A-shares listings slipped 0.2 percent. This was their fourth-straight daily loss. The Shanghai Composite Index slipped 0.1 percent in a third day of losses as bourse volume sank to its weakest in nearly three weeks. Traders feared the central bank could drain funds from the interbank market at the first of its two open market operation this week on Tuesday.
All four indexes failed to hold onto midday gains in choppy trading. "The mixed data suggest recovery remains patchy, but the positive official manufacturing PMI reading could spur a short term rotation into the larger cap counters in the A-share market," said Cao Xuefeng, Huaxi Securities Chengdu-based head of research. The CSI500 of small- and mid-cap counters listed in the mainland underperformed on the day, falling 0.7 percent, while Shanghai shares of the country's largest lender, Industrial and Commercial Bank of China (ICBC) climbed 0.7 percent.
In a note on Monday, strategists at CICC said it is time now for A-shares investors to turn cautious, advising clients to take profit on sell outperformers with stretched valuations and no hope of a recovery in first half earnings. Applications to list on the mainland exchanges have dropped from more than 800 last November to 666, with state firms among the latest casualties of the securities regulatory's quest to overhaul initial public offerings in the mainland.
China National Building Material Co Ltd (CNBM) and Bank of Dalian were two state firms cited in mainland media reports to have withdrawn listing applications. CNBM's Hong Kong shares slid 2.2 percent and is now down almost 29 percent for the year. Stocks that saw strong gains last Friday that were distorted by month-end flows and an MSCI rebalancing, suffered big losses. Li Ning, which surged 15.8 percent last Friday, dived 6.4 percent on Monday.
Chinese property counters were lifted by a Monday report in the National Business Daily that the Beijing municipal government called off the auction for a residential plot because prices were too high. Average home prices in China's 100 biggest cities rose for the 12th straight month in May, a private survey showed on Monday, though the pace of increase slowed in a sign that government steps to cool the property market may be having an effect. China Vanke rose 0.2 percent in Shenzhen, Poly Real Estate gained 0.9 percent in Shanghai while China Resources Land rose 0.4 percent after earlier testing a record intra-day high.