Hong Kong shares suffered their biggest slump in nearly three months on Tuesday as investors took profits in the financial and growth-sensitive sectors that led this year's rally, worried that more sales of stakes to raise funds would be priced at big discounts.
Mainland Chinese markets had their worst day in a month, with the Shanghai Composite Index off 1.4 percent. The China Enterprises Index of the top mainland listings in Hong Kong sunk 3.1 percent.
The broader Hang Seng Index slipped 2.2 percent, with AIA Group Ltd its top drag, down 8.4 percent after American International Group Inc priced the sale of its stake in its Asia subsidiary at the bottom of expected range, suggesting sentiment is darkening.
Investors fear the same could happen for Industrial and Commercial Bank of China (ICBC) , the mainland' biggest lender, following a Hong Kong media report that Goldman Sachs is looking to cut its stake. ICBC lost 3.8 percent in Hong Kong and 0.9 percent in Shanghai.
It's a downward spiral right now. The weakness is across the board. We are pretty early in this shift in sentiment, so it's not quite possible to call a bottom to this correction now, said Alex Wong, Ample Finance's director of asset management.
The Hang Seng Index ended at 20,806.3, its lowest close in more than a month, and it looked vulnerable to more losses with no immediate technical support seen. Its 200-day moving average was still some way off, at 20,244.1.
Shanghai-listed Industrial Bank Co priced its 26.4 billion yuan ($4.2 billion) share placement at a 9 percent discount to its 14 yuan price before trading resumed on Tuesday for the first time since Feb. 28.
Industrial Bank, seen as a mid-sized bank, lost 3 percent in more than double its 30-day average volume to sink to its lowest since Feb. 2.
Before this week, the Hang Seng Index had gained 17 percent in 2012, the China Enterprises Index was up 18 percent and the Shanghai Composite Index was up 12 percent.
EARNINGS, CHINA GROWTH CONCERNS HIT CYCLICALS
Chinese automakers and materials were also hard hit, tracking weakness in growth-sensitive sectors in Asia-Pacific such as resources in Australia and steel and shippers in Korea. Investors took profit on this year's outperformers.
Geely Auto fell 7.4 percent to HK$3.25 with traders citing a downgrade by HSBC to underweight from neutral. Before Tuesday, the Chinese automaker had surged 106 percent in 2012 after falling 50 percent last year.
The Geely downgrade also hit its peers. Warren Buffett-backed BYD Co Ltd sunk to the worst loss in more than five months, bleeding 9.9 percent. Before this week, it was up 47 percent in 2012.
Corporate earnings were also in focus. Market watchers see them as the next catalysts, along with a raft of fresh data reports from China. Inflation, retail sales and industrial output are expected on Friday, then trade, money supply and loan growth on Saturday.
On Tuesday, Changsa Zoomlion Heavy Industry tumbled 7.1 percent, after Credit Suisse analysts said they expected low sales and margin pressure from higher costs to result in an earnings miss.
Chinese consumer giant Want Want China reversed a 2.8 percent loss at midday to end up 4 percent after posting earnings at lunch that saw its headline net profit beating expectations.