China, Hong Kong shares post hefty losses on tightening worries

Hong Kong and China stocks fell on Thursday, with a key mainland index suffering the biggest intraday drop in over a year, on worries about monetary tightening by the Chinese central bank in the months ahead and further curbs on the property sector.

China’s CSI300 index, which tracks the largest listed firms in Shanghai and Shenzhen, slid 3.4 per cent, its biggest intraday decline since late 2011. The blue chip Hang Seng lost 1.7 per cent to end at 22,906.67, its lowest closing since the year began.

Moves by China’s central bank to aggressively drain funds from the interbank market startled mainland investors, said Chen Shaodan, analyst at New Times Securities, and led to a selloff on fears that a sustained drain on liquidity is in the offing, which could depress stock prices.

The China Enterprises Index of the top Chinese listings in Hong Kong fell 2.2 per cent and the Shanghai Composite Index ended down 3 percent at 2,378.8, its lowest close since late January.

The property sector took a hit after China’s cabinet on Wednesday restated its intention to extend a pilot property tax programme to more cities and urged local authorities to impose price control targets on new homes.

In Hong Kong, the blue chip property sub-index fell 1.5 per cent to its lowest close so far in 2013 with Cheung Kong losing 2.4 per cent, Sun Hung Kai Properties falling 1.5 per cent, and New World Development sliding 2.5 per cent.

“The selling pressure was a bit overdone and investors trimmed their holdings in whichever stock they think is overvalued,” said Alex Wong, a director at Ample Finance Group. ”But players were also cautiously doing bottom-fishing, and that suggest that their risk appetites are still there.”

China Overseas Land, which has dropped 5 per cent so far this year, gained 0.9 per cent on Thursday, while China Resources Land climbed 1.4 per cent.

Shares of Belle International Holdings dived as much as 18 per cent after China’s top footwear retailer said its 2012 profit would come in at the lower end of estimates, just marginally higher than in 2011.

“The reason for the drop was due to overestimation of sales results by analysts,” said Patrick Yiu, a director at CASH Asset Management. “Most of the analysts were still quite bullish on the China retail sector.”

Belle shares, which closed at a record high on Wednesday, ended down 16.8 per cent at their lowest close since November 2012. Smaller rival Daphne International also fell 6.4 per cent.

However, investors were keen to bet on fundamentally strong companies. Shares of Italian fashion house Prada SpA rose 5.2 per cent, in the second straight day of gain, to end at their record close, as consumer confidence in the world’s second largest economy improves.

Goldman Sachs reiterated a “buy” rating on the stock after the luxury bags maker posted strong revenues growth.

Macau gambling stocks remained weak for the third consecutive day as analysts said short-term consolidation may last one to two months as the sector pulls back from recent gains.

The People’s Bank of China let a net 910 billion yuan (HK$1.12 trillion) drain from the interbank market this week.

In addition, the central bank this week returned to using longer-term forward repos to drain funds, instead of reverse repos which inject funds, for the first time since June.

But money market dealers in China’s interbank market said that the PBOC operations were mostly intended to offset the record-high injection the central bank made prior to the Chinese Spring Festival holiday, which saw markets close for a week.

Money rates increased slightly but liquidity remained ample, dealers said, thanks to the influx of funds flowing into the market as a result of foreign exchange purchases by the central bank.