Hong Kong's benchmark Hang Seng index fell for the sixth consecutive session on Thursday after Morgan Stanley - usually bullish on China - downgraded the MSCI China Index for the first time in 7-1/2 years, citing valuation concerns. Morgan Stanley on Thursday demoted MSCI China - which captures mid- and large-cap Chinese companies listed in Hong Kong - to equal-weight from overweight, the first downgrade of the index since November 2008.
"Dramatic recent outperformance has led to a deterioration in absolute and relative valuations and a technically overbought situation," Morgan Stanley strategist Jonathan F Garner and his team wrote in a research report. The Hang Seng index fell 1.3 percent, to 27,289.97 points, while the China Enterprises Index lost 1.6 percent, to 13,768.47 points.
Among the most actively traded stocks on Hong Kong's main board were CCT Land, down 13.3 percent to HK$0.03. Landing International, up 1.3 percent to HK$0.16 and Heng Fai Enterprises Ltd, up 45.1 percent to HK$0.37. Total trading volume of companies included in the HSI index was 2.0 billion shares. Investor sentiment was also soured by further losses in mainland China.