Hong Kong shares lost 1.1 p ercent on Friday, capping their worst week since November, and Shanghai fell to its lowest level in nearly six weeks as concern over global economic growth, particularly for China, is cutting gains from this year's rally.
Shrinking manufacturing activity in China as well as Germany and France, the two largest economies in the euro zone, fuelled worries over the outlook for the global economy, while largely lacklustre annual earnings from Chinese companies kept investors on the back foot.
The Hang Seng index had a weekly slide of 3 percent, its worst performance since dropping 4.3 percent in the week ended Nov. 27.
On Friday, the index ended at 20,668.8, with banks the biggest drags after disappointing results from Agricultural Bank of China Ltd . AgBank dropped 3.1 percent in Hong Kong, while larger rival Industrial and Commercial Bank of China Ltd fell 1.9 percent to a 2-1/2 month low.
On the mainland, the Shanghai Composite Index fell 1.1 percent for the day, taking the weekly fall to 2.3 percent. Investor optimism that preceded the National People's Congress, which ended last Sunday, has faded, partly due to the sluggish annual results from China Inc.
About half the companies tracked by Thomson Reuters StarMine have reported 2011 full-year results and 71 percent have missed estimates.
Datawise, yes, numbers from China have been a worry but we have had a very decent quarter for the market, said Tom Kaan, director at brokerage Louis Capital Markets in Hong Kong.
Iran remains a curveball so does Europe's periphery, said Kaan, adding that some shorter-term investors who got in last month were likely taking money off the table.
So far this year, the Hang Seng has gained 12.1 percent, compared with 17.7 percent on Feb. 29.
The Shanghai Composite is up 6.8 percent now. At the March 3 close, the year's highest, it was 11.9 percent above the end of 2011.
AgBank, the country's No.3 lender by market value, reported full-year results that were about 6 percent below market expectations, according to Thomson Reuters I/B/E/S. The bank's Shanghai listing fell 0.4 percent.
ICBC fell below its 200-day moving average in Hong Kong, suggesting a weak technical outlook. It was the second most shorted stock by midday, with short interest nearing a 12-month high, traders said.
On the week, ICBC shares fell 4.7 percent.
Relative resilience of some Hong Kong large caps had kept the market from an absolute beating this week, with each day the tape feeling a lot worse than what the overall index move would suggest, said a trader at a large U.S bank in Hong Kong.
Among the week's top performing large-caps were Tencent Holdings, up 2.4 percent, as well as local utility Hong Kong China & Gas, up 1.7 percent.
Chinese shares in Hong Kong have borne the brunt of the sell-off with the China Enteprises index of top mainland firms off nearly 10 percent this month. It has fallen for eight successive days, the longest losing streak since June 2010.
Air China Ltd suffered the steepest drop in about a month, falling 3.9 percent to a more than five-month low. It was the second most heavily traded China stock in Hong Kong, after AgBank.
Bucking the broader trend, consumer goods exporter Li & Fung Ltd rose 4.2 percent in healthy volume after its forecast-beating 2011 results spurred broker upgrades.
Li & Fung has risen more than 83 percent since its 2011 low, in August.