Hong Kong and mainland Chinese stocks closed lower on Thursday, in line with sharp declines across most Asian share markets, dragged lower by falls in the United States and a clampdown on margin trading. The benchmark Hang Seng Index fell 1.07 percent, or 265.96 points, to 24,595.85 on turnover of HK$89.48 billion ($11.54 billion).
In mainland China, the Shanghai Composite Index dropped 1.31 percent, or 43.43 points, to 3,262.31 on turnover of 296.4 billion yuan ($47.4 billion). The Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 0.62 percent, or 9.48 points, to 1,529.38 on turnover of 219.9 billion yuan.
Analysts said equities were dragged lower by sharp falls on Wall Street and concerns that China's market watchdog will clamp down on margin trading, which has helped to fuel a recent rally. The China Securities Regulatory Commission (CSRC), will launch an "on-site inspection" of 46 brokerage firms' margin trading business, the official Xinhua news agency reported late on Wednesday.
The CSRC has not confirmed the move. When it announced this month it was punishing 12 brokerages for margin trade rule violations, the Shanghai index tumbled 7.70 percent in its biggest one-day fall since June 2008. Margin trading - where investors trade mostly with borrowed money, heightening both risk and reward - helped to drive the Shanghai index up more than 50 percent in 2014.
"It looks like regulators want to reduce leverage to cool the stock market and don't want to see a very fast gain," Zheshang Securities strategist Wang Weijun told Bloomberg News. "The pressure for a correction is building up." Sun Jianbo, Beijing-based chief strategist for China Galaxy Securities, said the market lacks further upward momentum, given the persistent weakness in the domestic economy. "Now as stock valuations have recovered while economic fundamentals remain sluggish, there aren't enough reasons for the stock market to continue rising," he said.
"The inspection just offered an excuse for investors to lock in profits." Brokerages fell in Shanghai. Haitong Securities dropped 3.20 percent to 20.25 yuan, while Citic Securities fell 2.39 percent to 28.18 yuan. Other financial firms were also lower in Shanghai. Bank of China lost 3.30 percent to 4.40 yuan, while Ping An Insurance Group shed 2.41 percent to 70.55 yuan. In Hong Kong, AIA Group Ltd fell 2.70 percent to HK$45.10, while technology conglomerate Tencent lost 1.68 percent to HK$134.60. Banking giant HSBC declined 0.96 percent to HK$72.30.