SHANGHAI (REUTERS) - Stocks in China and Hong Kong skidded more than 1 per cent on Monday (April 16) on worries that slowing credit growth and tightening regulatory requirements will start to weigh on the Chinese economy later in the year.
The CSI300 index fell 1.6 per cent to 3,808.16 points by the end of the morning session, while the Shanghai Composite Index lost 1.5 per cent to 3,111.65, extending losses from Friday and sharply underperforming the rest of Asia.
The Hang Seng index dropped 1.5 per cent to 30,355.93, while the Hong Kong China Enterprises Index lost 1.9 per cent to 12,031.73.
Real estate and financial firms led the declines in both mainland and Hong Kong markets as Chinese authorities continue to tighten the screws on riskier types of financing in a bid to reduce systemic risks.
First-quarter GDP data on Tuesday is expected to show the economy carried most of its growth momentum from last year into early 2018, with analysts predicting an expansion of 6.7 per cent on-year, only marginally softer than the 6.8 per cent reported in the fourth quarter, according to a Reuters poll.
That resilience could give authorities' confidence to continue their regulatory crackdown.
In the latest effort by Beijing to reduce risks in the financial system, China's central bank published rules on Friday to restrict the issuance of short-term financing notes by brokerages.
"The concern over China's economy lingers as financing activities by the real estate sector and local governments have been restricted amid Beijing's deleveraging campaign," China Merchants Securities wrote in a report.
Worries over trade tensions between China and US also persisted, the brokerage added.
Chinese banks doled out more loans in March than February and appeared to make solid progress in reining in off-balance sheet lending that has prompted the sweeping crackdown by regulators, according to data released on Friday after stock markets had closed.
But new lending, money and total social financing grew less than expected. That followed a surprise drop in March exports reported earlier on Friday, which came amid heightened trade tensions with the United States, though most analysts believe it was likely due to seasonal factors.
"The export deficit and slower total social financing announced on Friday may have indicated weaker-than-expected macro activity in March, although we think the market has partly priced that in," Gao Ting, head of China strategy at UBS Securities, wrote a note.
Bank shares were also sold on fears of growing margin pressure as the central bank slowly liberalises interest rates.
China's central bank will relax its informal guidance for the upper limit of commercial banks' deposit rates, three sources with knowledge of the matter told Reuters on Friday.
"For the short-term, the relaxation of the commercial banks'deposit rate ceiling could be negative for banks, as their net interest margins might be hurt by intensified competition," said Sun Lijin, a financial analyst with Pacific Securities.
Bucking the broad trend, shares in firms based in Hainan surged after China said it plans to set up an international free trade zone and port on the southern island.
The largest percentage gainers in the main Shanghai Composite index were China Hainan Rubber Industry Group Co Ltd up 10.03 per cent, followed by Hna Innovation Co Ltd gaining 9.98 per cent and Hna Innovation Co Ltd up by 9.98 per cent.
The largest percentage losses in the Shanghai index were Shanghai Feilo Acoustics Co Ltd down 10.01 per cent, followed by Taiyuan Lionhead Cement Co Ltd losing 10.01 per cent and Shanghai Hongda Mining Co Ltd down by 9.65 per cent.
The top gainers among H-shares were Guangdong Investment Ltd up 1.66 per cent, followed by CNOOC Ltd gaining 0.81 per cent and SINOPHARM GROUP CO LTD up by 0.44 per cent.
As of 0415 GMT, China's A-shares were trading at a premium of 22.35 per cent over the Hong Kong-listed H-shares.