Hong Kong shares suffered a first loss in four days on Wednesday after data suggesting more stable home prices in China doused expectations of policy easing and spurred profit taking in the Chinese property sector.
The sector has outperformed both the broader onshore and offshore stock markets this year after recording consecutive annual losses as Beijing took steps to cool an overheating property market.
Investors intent on holding onto property sector shares had to be prepared for volatile movements from day to day due to the uncertainty over future policy, warned Lee Wee-Liat, BNP Paribas' head of Asia property research.
The upcoming earnings for the Chinese property sector will be bad, but investors will probably gloss over that, Lee said.
Policy will still be key and they will be watching the guidance the companies provide, especially on their margins since there have been a lot of price cuts, he added.
The Hang Seng Index shed 1.1 percent, underperforming most Asian peers. The China Enterprises Index of the top Chinese listings in Hong Kong lost 0.9 percent, with turnover on the bourse lacklustre overall.
The CSI300 Index, which tracks the top listings in Shanghai and Shenzhen and on which major Chinese stock index derivative products are based, finished flat. The Shanghai Composite Index rose 0.4 percent in volume that jumped 20 percent from Tuesday.
Weakness in the property sector in onshore Chinese markets offset strength in the brokerage sector, fuelled by expectations of policy support if Beijing takes more incremental steps to liberalize capital markets.
Official Chinese media earlier this week reported that Beijing could hold its mid-year economic meeting as early as Wednesday to lay out a policy programme designed to stabilise the economy in the second half of the year.
Haitong Securities gained 1.6 percent, while smaller sector rival, Hong Yuan Securities jumped 6.1 percent.
Chinese power producers were also strong after China's State Electricity Regulatory Commission unveiled plans to open the mainland's power sector to private investment and more competition, brokers said.
Datang Power jumped 4 percent in Shanghai and 2.5 percent in Hong Kong.
CHINA PROPERTY, HSBC WEAKNESS PEGS MARKETS BACK
Hopes of policy support for the Chinese property sector faded after data showed home prices were flat in June versus May, breaking eight straight months of decline.
The Shanghai property sub-index slumped 3.3 percent to the lowest in almost two months. It is still up 18.7 percent in 2012, compared to 1.4 percent loss on the Shanghai Composite Index.
Shanghai-listed Poly Real Estate slumped 4.9 percent. It is still up 41 percent this year. Shenzhen-listed China Vanke slid 3.8 percent. It is up 26 percent in 2012.
In Hong Kong, China Resources Land dived 6 percent while Overseas Land & Investment shed 4 percent. They are up 19 and 37 percent in 2012, respectively, compared to the 4.4 percent gain on the Hang Seng Index.
Shares of Europe's largest bank, HSBC Holdings Plc dropped 2.1 percent in its worst day since it lost 2.8 percent on May 30, and last traded at HK66.45 it was nearing the one-month intra-day low at HK$66.05 recorded on July 13.
A day after a U.S. Senate subcommittee released a 400-plus-page report detailing how the British bank acted as a financier to clients routing funds from the world's most dangerous corners, senators remained sceptical that the bank could deliver on promises it had broken before, even though HSBC officials pledged the bank is changing its ways.