By V. Phani Kumar, Matthew Allen and Kirsty Green
HONG KONG (MarketWatch) -- China's benchmark stock index skidded 4.7% Wednesday on fears an expected fall in bank lending in the remainder of the year could affect liquidity, a crucial factor behind the heady rally on the mainland markets over the past few months.
The drop led a generally down day for Asian stocks. Indian stocks were hurt by persistent concerns that deficient rainfall in several parts of the country would affect rural incomes and delay economic recovery. Most other markets also ended lower taking a lead from Wall Street's drop Tuesday and on caution ahead of the outcome of a U.S. Federal Open Market Committee meeting.
China's Shanghai Composite index fell to 3,112.72, as recent data showing a 77% decline in bank lending in July from June raised fears banks may make fewer loans following record disbursals in the first half of the year.
"Even though the Chinese government insists it'll keep a loose monetary policy, the reality may be that some credit tightening measures have already been implemented, said Ben Kwong, chief operating officer at KGI Asia. "The market is worried that a significant slowdown in lending means less liquidity and [investors are] taking profits."
Kwong also listed the fall in commodity prices because of the U.S. dollar's recent strength as a contributor to the slump. Commodities priced in dollars often fall in price when the dollar rises. Aluminum Corp. of China /zigman2/quotes/208051344/composite ACH -0.34% , Baoshan Iron & Steel, Shandong Gold-Mining Co. and Yunnan Chihong Zinc & Germanium Co. were among stocks that fell 6% or more in Shanghai. Among lenders, Industrial & Commercial Bank of China fell 3.9% while China Construction Bank /zigman2/quotes/209484779/delayed CICHF +3.46% lost 4.2%.
The performance weighed down Hong Kong stocks, with the Hang Seng Index falling 3% to 20,435.24. In addition to a fall in Chinese banks and property stocks, heavyweights HSBC Holdings /zigman2/quotes/202687335/delayed HK:5 -2.21% and China Mobile /zigman2/quotes/202687335/delayed HK:5 -2.21% also tumbled 4.7% and 3.8% respectively, as investors locked in profits.
Japan's Nikkei Stock Average of 225 companies fell 1.4% to 10,435.00, Australia's S&P/ASX 200 rose 0.3%, New Zealand's NZX 50 added 0.8%, South Korea's Kospi lost 0.9% and Taiwan's Taiex slipped 0.2%.
"Investors seem to be nervous after sizable rallies recently, and they also want to check whether the Fed hints at an 'exit strategy' timing during the meeting," said Choi Seong-lak at SK Securities in Seoul said.
India's Sensex was down 1.8% in afternoon trading, while Singapore's Straits Times Index fell 1.1%. Consumer products major Hindustan Unilever fell 4.2%, while among metals producers, Hindalco Industries lost 4% and Tata Steel sank 5.6%.
"It's primarily monsoon related," said Biranchi Sahu, head of institutional sales at Khandwala Securities. He said although many brokerages have revised India's economic growth estimates lower because of the poor monsoon, the impact wasn't likely to be as bad as what he called the "media hype" made it out to be. "I'm still bullish on the market as economic indicators like industrial output are showing an improvement."
In Tokyo, shares of Sompo Japan Insurance fell 2.9% a day after it announced a first-quarter net loss. A stronger yen hurt exporters, with Toyota Motor Corp. /zigman2/quotes/200537742/composite TM -0.47% /zigman2/quotes/203803129/delayed JP:7203 -2.86% sliding 2.4% and Canon /zigman2/quotes/207639533/delayed JP:7751 -1.55% /zigman2/quotes/210242912/composite CAJ +0.59% losing 1.7%.
In Hong Kong, shares of bourse operator Hong Kong Exchanges /zigman2/quotes/200234512/delayed HK:388 +0.55% /zigman2/quotes/206683132/delayed HKXCF +2.94% ended down 3.9% in the weak market, in spite of reporting a growth in second-quarter net profit.
But in Australia, banks and miners helped the benchmark index end higher. Shares of Commonwealth Bank of Australia /zigman2/quotes/200638713/delayed AU:CBA -0.85% /zigman2/quotes/207018701/delayed CBAUF -2.19% gained 3.2% on better-than-expected fiscal year results, helping lift Westpac Banking Corp. /zigman2/quotes/203084975/delayed AU:WBC -0.24% /zigman2/quotes/206661702/composite WBK -0.72% shares 1.4%.
Flat-panel makers were a bright spot in Taipei despite broad market losses, on expected price hikes after Corning Inc. cut LCD glass production due to Japan's recent earthquake. AU Optronics jumped 5.6% and Chi Mei Optoelectronics rose 2.5%.
Shares of Flight Centre /zigman2/quotes/209988212/delayed AU:FLT -2.25% /zigman2/quotes/202651967/delayed FGETF +0.93% jumped 13.3% and Qantas Airways /zigman2/quotes/205534063/delayed AU:QAN -2.58% /zigman2/quotes/200387630/delayed QUBSF -1.22% rose 2.8% after Flight Centre Tuesday said both companies agreed on "reasonable commercial terms" to retain their partnership next year.
Gains in Wellington were led by heavyweight Fletcher Building /zigman2/quotes/200215142/delayed NZ:FBU +0.14% , which soared 8% following its in-line full year results.
The U.S. dollar and euro were weaker against the yen as falls for Asian equity markets fueled risk aversion. The selling came ahead of the FOMC meeting outcome, on an expectation that its statement may be somewhat hawkish and could signal a near-term end to the bond-buying program.
The euro was recently at Y134.85 from Y135.74 late in New York trade, and at $1.4121 from $1.4154. The dollar was at Y95.47 compared with Y95.93.
Crude oil futures recently fell 17 cents to $69.28 per barrel, while spot gold lost $3.10 to $942.20 per troy ounce.