Hong Kong shares slipped on Monday as weak overseas markets, profit-warnings from Chinese companies and more euro zone wobbles trumped the longer-term positives of continued steps towards the liberalisation of China's currency.
China took a milestone step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further opens its nascent financial markets.
While the measure is largely seen as a positive step for Chinese markets, traders said the mood was cautious on Monday.
This stemmed from worries of more earnings trouble for Chinese companies as well as of more share offerings and sales at discounts. On Monday, there was a $2.5 billion placement in ICBC at a 3.1 percent discount to Friday's close.
The Hang Seng index ended the day down 0.4 percent at 20,610.6 with financials the biggest drag. The China Enterprises index of top locally listed mainland firms fell 0.8 percent, underperforming Asian peers.
After the close of markets on Friday, two Chinese airlines warned that first-quarter profits would slide while steelmaker Angang Steel forecast a net loss.
Angang shares fell 2.8 percent on Monday and were the top losers on the China Enterprises index. China Eastern Airlines , which said its first-quarter profits to fall 50 percent, fell 4.9 percent to a six-month low.
China Southern slid 2.8 percent while flagship carrier Air China fell 2.6 percent.
Markets are looking for conviction, said Tom Kaan, director at Louis Capital Markets in Hong Kong.
The RMB (yuan) band widening move is a good one in the long term but right now there is some fear and frustration, particularly in domestic markets in Shanghai, after the drift lower. The retail crowd is not buying, said Kaan.
Renewed fears on Europe where Spanish 10-year bond yields broke above the key six percent level again drove shares of HSBC down 1.4 percent making them the biggest drag on the Hang Seng.
In China, the Shanghai Composite slipped 0.1 percent, retreating from a three-week high as investors booked profits in last week's leading gainers such as banks and oil majors.
Rotation into sectors that hold the promise of sustaining strong earnings growth through 2012 is likely to serve investors well according to analysts at CCB International, the brokerage arm of China Construction Bank.
Consumer, insurance and technology stocks are among CCB's top picks while investors should look to sell materials and banking stocks, it said in a note to clients.
GOLDMAN SELLS ICBC STAKE
Trading activity in Hong Kong was light ahead of economic data from the U.S. including March retail sales and housing starts, scheduled for release over Monday and Tuesday.
A $2.5 billion ICBC stake sale by Goldman Sachs helped to bring turnover on the Hong Kong exchange to its average level during the past month. The sale accounted for about one-third of the day's trading.
Singapore state investor Temasek picked up almost the entire stake adding a $2.3 billion of the bank's shares to its portfolio of Chinese financials. Temasek already owns stakes in China Construction Bank and Bank of China
On Monday, shares of ICBC fell 0.8 percent. Still, one trader at a large U.S. bank in Hong Kong said Temasek absorbing almost of Goldman's stake helped remove a large overhang on the stock as well as the sector.
If the ICBC sale not gone smoothly, the markets would have likely seen a day of deeper losses, the trader said.
Smaller share placements on Monday from Shenzhou International, down 11.1 percent on the day, and retailer Daphne International, down 7.64 percent, also weighed on sentiment.
Macau gaming stocks were a relative bright spot after last week's launch of the gambling enclave's newest casino.
Sands China, owner of the new casino, rose 1.3 percent. Galaxy Entertainment gained 2 percent while Wynn Macau was up 1.6 percent.