By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — Chinese stocks tumbled Monday on concerns Beijing won’t ease policies despite slowing growth, with the losses also dragging down other regional markets.
The Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP -0.32% fell 2.4%, and Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +0.46% dropped 1.3%, with the retreat coming amid caution ahead of the release of China’s monthly inflation data Tuesday.
/zigman2/quotes/210598030/delayed HSI 27,655.81, +125.61, +0.46%
In a statement Friday elaborating on its pursuit of economic restructuring and reforms, the State Council — China’s cabinet — indicated it would strengthen supervision of wealth-management products and emphasized financial-market stability, but also hinted it would loosen controls on banks’ interest rates only gradually. The State Council also suggested tighter controls over credit to industries with excess production capacity.
“The implication is that, for industries with over-capacities, banks should support big profit-making enterprises and need to shun small polluting ones,” said Bank of America Merrill Lynch economist Ting Lu.
“We believe the guidelines indicate the new government’s commitment to economic restructuring to achieve a high-quality sustainable growth without large stimulus ahead,” Barclays analysts wrote in a note to clients Monday.
The drop came in the wake of a string of economic downgrades by brokerages in recent weeks, including from Goldman Sachs, HSBC, Barclays and Credit Suisse. On Monday, Citigroup joined the list, cutting its forecast of China’s gross domestic product for 2013 to 7.4% from 7.6% previously, and for 2014 to 7.1% from 7.3%.
“We see some downside risks from policy missteps. The recent episode in the interbank money market highlights the lack of communication with the market and possibly limited coordination between government agencies,” Citigroup wrote in its report.
The losses in Shanghai and Hong Kong rubbed off on investor sentiment elsewhere in the region. Surrendering early gains, South Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 +0.07% fell 0.9%, while Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO +0.43% dropped 0.7%.
In Japan, the Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK +0.89% staged a sharp U-turn and ended 1.4% lower. The benchmark had risen more than 1% earlier in the session on buying inspired by a better-than-expected increase in U.S. jobs and further weakness in the yen.
Financial and property sector shares were hit in Hong Kong, with China Construction Bank Corp. /zigman2/quotes/208974133/delayed HK:939 +1.24% /zigman2/quotes/207732534/delayed CICHY +1.33% sliding 2.1%, Industrial & Commercial Bank of China Ltd. /zigman2/quotes/201401473/delayed HK:1398 +0.91% /zigman2/quotes/202401350/delayed IDCBY +1.07% skidding 1.7%, and Hang Lung Properties Ltd. /zigman2/quotes/200230831/delayed HK:101 +0.33% /zigman2/quotes/205863241/delayed HLPPY +0.09% losing 3.8%.
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The resource sector also came under added selling pressure as the dollar strengthened after the U.S. upbeat jobs report Friday, hurting commodity prices.
On mainland Chinese bourses, shares of Shandong Gold-Mining Co. /zigman2/quotes/200150484/delayed CN:600547 +2.07% plunged 9.4%, and those of Jiangxi Copper Co. /zigman2/quotes/201334192/delayed CN:600362 -0.54% /zigman2/quotes/204256025/delayed JIXAY -2.94% fell 5.6%.
Coal miner China Shenhua Energy Co. /zigman2/quotes/202621923/delayed CN:601088 -0.78% /zigman2/quotes/206839995/delayed CSUAY -0.82% slumped 9%, also hurt as the stock traded without rights to a dividend.
Also on the downside, major miners fell in Sydney, with BHP Billiton Ltd. /zigman2/quotes/201448516/delayed AU:BHP -0.72% /zigman2/quotes/208108397/composite BHP -0.25% dropping 1.8%, and Rio Tinto Ltd. /zigman2/quotes/200083756/delayed AU:RIO -0.22% /zigman2/quotes/202627887/composite RIO -0.15% losing 1.9%.
Some energy names also retreated, as PetroChina Co. /zigman2/quotes/205108732/composite PTR +0.38% /zigman2/quotes/204979431/delayed HK:857 0.00% dropped 2.1% in Hong Kong, and Oil Search Ltd. /zigman2/quotes/204702973/delayed AU:OSH +0.63% slipped 0.3% in Sydney, although U.S. benchmark crude-oil prices topped $103 a barrel.
Monday’s performance in Asia followed a higher finish Friday on Wall Street in the wake of an upbeat nonfarm payrolls report. The U.S. economy added 195,000 jobs in June, beating estimates and fueling expectations that the Federal Reserve may soon begin to pare its asset purchases.
“The data reinforced expectations that the Fed would begin tapering in September,” said Crédit Agricole’s forex strategy chief Mitul Kotecha. “The Japanese yen in particular will remain susceptible to U.S. dollar strength and widening yield differentials.”
Several Japanese exporters declined against the backdrop of Chinese economic worries, even as the U.S. dollar /zigman2/quotes/210561789/realtime/sampled USDJPY -0.1024% extended gains above ¥101 to weigh on the broader market. Honda Motor Co. /zigman2/quotes/200490352/delayed JP:7267 -0.07% /zigman2/quotes/207173990/composite HMC +0.11% fell 2.1%, and Sony Corp. /zigman2/quotes/201361720/delayed JP:6758 +1.45% /zigman2/quotes/208567357/composite SNE +0.65% declined 2%.
Shares of Softbank Corp. tumbled 3.4% after Standard & Poor’s lowered its credit ratings on the telecommunications firm by two notches to BB+, below investment grade. S&P based the ratings action on its view that following Softbank’s acquisition of Sprint Nextel Corp., the Japanese group has a “’satisfactory’ business risk profile and a ‘significant’ financial risk profile.”
Data released earlier on Monday showed the country’s current-account surplus narrowed to ¥540.7 billion ($5.33 billion) in May, missing expectations, though marking the first back-to-back surplus in more than two years.
Meanwhile, shares of Asiana Airlines Inc. /zigman2/quotes/207223301/delayed KR:020560 -3.19% /zigman2/quotes/200470570/delayed ASIC 0.00% slumped 5.8% in Seoul after a Boeing 777 aircraft operated by the airline crashed in San Francisco, killing at least two and injuring more than 180 others.