China stocks post biggest fall in a month as recovery falters

BEIJING: Hong Kong's benchmark Hang Seng Index fell 1.3%, while the China Enterprises Index dropped 1.4%. "Financial markets are losing faith in China's economic recovery," said Wei He, China economist at Gavekal Dragonomics in a note, as data last week showed April industrial output and retail sales growth undershot forecasts, suggesting the economy is losing momentum.

Chinese stocks saw their biggest daily percentage fall in a month on Tuesday, as market participants remained worried about the country's slowing economic recovery, while a weakening yuan and geopolitical risks also kept investor sentiment fragile.

China's blue-chip CSI300 Index slumped 1.4% at the close, while the Shanghai Composite Index plunged 1.5%. Hong Kong's benchmark Hang Seng Index fell 1.3%, while the China Enterprises Index dropped 1.4%.

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"Financial markets are losing faith in China's economic recovery," said Wei He, China economist at Gavekal Dragonomics in a note, as data last week showed April industrial output and retail sales growth undershot forecasts, suggesting the economy is losing momentum. China's yuan weakened again on Tuesday, flirting with fresh five-month lows, weighed by China's weak recovery and as hawkish comments from U.S. central bankers propped up the dollar.

"The quick, short-term depreciation in the yuan might disturb the pace of money inflows into China's stock market, and cause concerns on room for more policy easing," said Li Lifeng, chief strategist at Huaxi Securities in a note. Foreign investors sold nearly a net 8 billion yuan ($1.16 billion) of Chinese stocks via the Stock Connect scheme on the day.

The leaders of the Group of Seven (G7) rich democracies this weekend pledged to "de-risk" without "decoupling" from China, an approach that reflected European and Japanese concerns about pushing Beijing too hard, officials and experts said. Most sectors in China's market fell, with insurers down 3.3%, while both semiconductor-related firms and tourism-related companies dropped 2%.

In Hong Kong, tech giants declined 1.3%. However, Gavekal's Wei added that current market pricing is difficult to justify unless the recovery completely collapses.

"Such an outcome is unlikely, as policymakers still have room to manoeuvre, the labour market is improving and business confidence is higher," he said. "The big risk now is that the pessimism is overdone."

($1 = 6.9121 Chinese yuan)