Hong Kong shares tested a seven-month low on Tuesday, with local developers and Chinese cyclical counters leading index losses as investors took risk off the table ahead of the Dragon Boat Festival holiday.
A dip in the Japanese stock market after the Bank of Japan stood pat on its monetary policy position and held off on fresh steps to curb bond market volatility, further weighed on market sentiment.
By midday, the Hang Seng Index was down 0.9 percent at 21,423.7 points after earlier testing its lowest intra-day levels since Nov. 21. Losses of nearly 9 percent from its May 20 peak have prodded the benchmark to its most technically oversold levels in a year.
The China Enterprises Index of the leading Chinese listings in Hong Kong shed 1.3 percent. Mainland China is shut June 10 to 12, with Hong Kong also closed on Wednesday. Both markets will resume trading on Thursday.
"People are cutting risk ahead of the holiday and unsure about how mainland markets will react when they reopen on Thursday after the soft data over the weekend," said Kelvin Wong, Julius Baer's China and Hong Kong equities analyst.
Data over the weekend showed China inflation, bank-lending growth and investment were below expectations in May, while factory output and retail sales rose around the same pace as in April.
But upbeat comments from China Premier Li Keqiang suggest Beijing will abstain from fiscal stimulus, particularly since the new central leadership has reportedly lowered their annual growth threshold to 7 percent.
On Tuesday, growth-sensitive counters from Chinese banks to coal producers and cement producers were weaker. China National Building Material (CNBM) sank 3.3 percent to a nine-month low.
Deutsche Bank analysts said investors' interest in Chinese cement stocks is at its weakest in five years. With cement prices in the mainland likely to disappoint in the third quarter, share price weakness could persist.
Jitters about the U.S. Federal Reserve tapering its aggressive monetary stimulus have triggered a sell-off in high dividend yielding names in the last weeks. On Tuesday, investors sold off most of these so-called defensive names.
Hong Kong developers New World Development and Hang Lung Properties each dived more than 4 percent. Link Real Estate Investment Trust (REIT) fell 2.6 percent on the day, deepening losses on the year to more than 3 percent.
GAMING SECTOR NOT SPARED
The Macau gaming sector, among recent outperformers, was broadly lower after revenue data from the first week of June came in weaker than expected.
MGM China was knocked off a record closing high, tumbling 4.6 percent on fears that revenue growth for the full month of June could underwhelm. Its shares had surged 7.7 percent on Monday ahead of the data.
Barclays analysts said it could be too early to call this slowdown the beginning of a trend, attributing the unexpected revenue growth weakness to the timing of holidays in June. They are expecting a pick-up later in the month.
Chinese Internet giant Tencent Holdings extended a recent rally, rising 1.1 percent to near record highs. It is now up 24 percent on the year, outshining a 5.4 percent loss for the Hang Seng Index.