October 23, 2018 / 9:24 AM / 10 months ago

China, HK shares slump as hype subsides over policy support

* CSI300 -2.7 pct, SSEC -2.26 pct

* Securities sub-index sheds early gains

* Analysts see continued economic pressures

* Hang Seng loses over 3 pct, tracking Asian markets (Updates with closing prices, comment)

SHANGHAI/HONG KONG, Oct 23 (Reuters) - China’s main stock indexes resumed a downward spiral Tuesday, a day after the blue-chip index posted its biggest gains in nearly three years, as investors remained pessimistic about economic prospects and risks posed by shares pledged for loans.

At the close, the CSI300 index was down 2.66 percent. The Shanghai Composite index lost 2.26 percent.

The CSI300 has lost 7.4 percent this month, and the Shanghai index is down 8 percent.

“There has already been a turnaround in policy and liquidity elements, but the situation of slowing economic growth has not improved, and the Sino-U.S. trade conflict in particular has boosted pessimistic expectations,” Guosheng Securities analysts said in a note.

Coordinated messages of support from senior Chinese officials on the weekend - aimed at easing investor concerns over the risks posed by 4.3 trillion yuan ($619.58 billion) worth of shares pledged for loans - helped China’s markets to rally on Monday, driving the CSI300 to its strongest day since November 2015.

But on Tuesday, despite more official pledges of support for private firms, enthusiasm had disappeared among both onshore and offshore investors.

“There was a big turnaround last Friday, when the authorities came out to save the market. But ultimately, foreign investors don’t buy this story,” said Steven Leung, Sales Director at UOB Kay Hian.

Sectors fell across the board. The financial sector sub-index ended 2.19 percent lower, the consumer staples sector fell 5.98 percent, the real estate index lost 2.36 percent and the healthcare sub-index gave up 2.71 percent.

Some 17.83 billion shares changed hands on the Shanghai exchange, about 143 percent of the market’s 30-day moving average of 12.49 billion shares a day.

The securities sector sub-index, which was up 1.3 percent at the midday break on hopes that market support from regulators would benefit brokerages, ended down 0.19 percent. It had risen by the 10 percent daily limit on Monday.

Stocks fared no better in Hong Kong, with the main Hang Seng Index closing down 3.08 percent.

“Investors have digested the news around the policy support,” said Ben Kwong, head of research at KGI Asia.

“Their focus is turning to what’s happening in global markets, earnings of Hong Kong-listed companies and news around US-China relations,” he said.

Asian markets fell on Tuesday as sentiment was affected by concerns about Saudi Arabia’s diplomatic isolation and fresh worries about trade wars.

As of 0906 GMT, MSCI’s Asia ex-Japan stock index was off 2.12 percent.

In Japan, the Nikkei index closed down 2.67 percent.

In Hong Kong, the index for Chinese companies lost as much as 3 percent before ending the day down 2.44 percent.

Concerns about yuan weakness also weighed on the share prices of Hong Kong-listed Chinese firms and helped to drag down the Hong Kong market.

“A lot of the companies here are Chinese companies, their profits are in RMB but their shares are sold in Hong Kong dollar,” said Patrick Yiu, managing director at CASH Asset Management.

The yuan steadied on Tuesday after hitting a more than 21-month low in the previous late night session. At 0721 GMT, the yuan was trading at 6.9391 per U.S. dollar, 0.08 percent firmer than its close of 6.9444, the weakest such close since Jan. 3, 2017.

Chinese government bond futures rose as the stock market fell. Chinese 10-year Treasury futures for December delivery , the most traded contract, were up 0.22 percent at 95.330. ($1 = 6.9402 Chinese yuan) (Reporting by Andrew Galbraith and Noah Sin; Editing by Simon Cameron-Moore)

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