China's large cap-focused share index closed at its lowest in six months while the Shanghai Composite index closed at its lowest in more than three years on Monday, hit by a fresh slew of profit warnings reflecting the impact of a slowing economy.
The onshore markets underperformed Asian peers and limited gains in Hong Kong, where the Hang Seng Index crept up 0.2 percent.
Shares of ZTE Corporation slumped 16.3 percent in Hong Kong and the maximum 10 percent in Shenzhen after the world's fifth-largest telecommunications equipment maker, and subject of an ongoing FBI criminal investigation, warned of lower profits.
Several brokerages downgraded ZTE's Hong Kong listing in response. Analysts at JP Morgan slashed their rating on ZTE from overweight to underweight while cutting their price target by more than 50 percent.
There's going to be more profit warnings in the next few weeks, leading up to the earnings season in August. Even with policy easing, it's going to take a while before earnings improve, said Jackson Wong, Tanrich Securities' vice-president for equity sales.
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The Shanghai Composite Index slid 1.7 percent to close at its lowest since March 2009. The large cap-focused CSI300 Index, which tracks the top 300 listings in Shanghai and Shenzhen, closed down 2.1 percent at its lowest since Jan. 16 this year.
Shenzhen-listed Sunning Appliance, among the biggest privately-owned electrical applicance retailers in China, dived the maxiumum 10 percent to its lowest in more than three years after it warned of a 20 to 30 percent slump in first half profit.
Strength in Chinese oil majors helped the Hang Seng hold ground. The China Enterprises Index of the top Chinese listings in Hong Kong shed 0.2 percent as overall bourse turnover stayed weak.
PetroChina rose 1.5 percent, while CNOOC Ltd gained 0.4 percent, buoyed by higher oil prices. PetroChina closed at its lowest this year last Friday and is down 2.9 percent in 2012. By contrast, CNOOC is up more than 11 percent this year.
Sun Hung Kai Properties shed 1 percent after trading in its shares resumed in Hong Kong on Monday. Trading was suspended on Friday when the billionaire brothers who run the company were charged with alleged bribery in one of the city's highest-profile corruption cases to date.
MAINLAND INVESTORS TRIM PROPERTY OUTPERFORMANCE
Chinese property stocks were a major drag in onshore Chinese markets as investors took some profits in a sector that has outperformed the broader market this year on expectations the sector would benefit from policy easing.
Poly Real Estate shed 4.1 percent, trimming gains on the year to 47 percent. The Shanghai property sub-index fell 2.8 percent, trimming its gains on the year to 22.2 percent.
This compares to a 2.3 percent decline on the Shanghai Composite Index and a 2.3 percent gain on the CSI300 Index.
Premier Wen didn't mention anything specific on the sector in his comments over the weekend and with so many profit warnings, investors are choosing to clock some gains for themselves now, said Chen Yi, a Shanghai-based Xiangcai Securities analyst.
China's Premier Wen Jiabao, who has repeatedly reiterated curbs on the property sector will remain, said on Sunday that efforts to stabilise the economy are working and the government will step up efforts in the second half of the year to increase policy effectiveness and foresight.
Data released last Friday showed China's growth rate slowed for a sixth successive quarter to its slackest pace in more than three years, highlighting the need for more policy vigilance from Beijing even as signs emerge that action taken so far is beginning to stabilise the economy.
China's government could hold its mid-year economic meeting as early as Wednesday this week to lay out a policy programme designed to stabilise the economy in the second half of the year, the official China Securities Journal report on Monday.
In a weekly report on Monday, CICC strategists said it is not wise to stay bearish in the A-share market given the high likelihood of greater policy loosening in the third quarter.
We reiterate that investors should switch from small caps and defensive plays to interest rate sensitive non-bank financials, and start to watch oversold or infrastructure-related cyclicals such as cement, construction machinery, chemicals and nonferrous metals in mid-July, they added in the same note.