China stocks fell on Thursday as sentiment soured on slowing industrial profit growth, persistent yuan weakness, and growing concerns over tighter liquidity. Hong Kong shares dropped over 1 per cent, dragged by energy shares on lingering worries about China’s economic health and a possible US rate hike in December.
China’s blue-chip CSI300 index fell 0.4 per cent, to 3,340.66 points at the end of the morning session, while the Shanghai Composite Index lost 0.3 per cent, to 3,105.81 points.
Investor confidence in China’s economic recovery was shaken by fresh data showing profits in China’s industrial firms grew 7.7 percent in September, slowing sharply from the previous month’s 19.5 percent pace as several sectors were affected by weak activity.
Profits in industries such as electronics, steel and electricity were hit by a significant drop in growth, reinforcing suspicions that recent economic stability was the result of government stimulus and could be short-lived.
Further hurting sentiment, China’s offshore yuan slipped to fresh six-year low on Thursday after the People’s Bank of China set a weaker midpoint.
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Continued yuan weakness, which has handicapped Beijing’s ability to keep monetary policy loose, increased concerns of tighter liquidity ahead, amid signs that China is stepping up efforts to reduce corporate leverage.
China’s central bank will take into account off-balance sheet wealth management products (WMP) at commercial banks to assess their overall financial health, sources told Reuters.
Underscoring the tightening liquidity concerns, China’s 10-year treasury yields are set to rise for the fourth day on Thursday, while the seven-day repo rate , a widely-watched indicator for short-term borrowing costs, hit a one-month high on Wednesday.
In Hong Kong, the Hang Seng index dropped 1.2 per cent, to 23,056.62 points, while the Hong Kong China Enterprises Index lost 1.5 percent, to 9,554.46.
All main sectors fell in China and Hong Kong.
An index tracking Hong Kong-listed energy shares slumped over 2 percent, weighed by shares of Chinese oil giant CNOOC, after the company reported a 15.2 per cent fall in its third-quarter oil and gas revenue.