China stocks eased on Friday morning, with investors unnerved after Beijing unexpectedly raised short-term interest rates on the first trading day after the Lunar New Year holiday.
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The bearish sentiment spread to Hong Kong, where the market was poised for its fourth session of losses and investors awaited a key U.S. monthly jobs report that would set the tone for the Federal Reserve’s policy outlook.
Both the blue-chip CSI300 index and the Shanghai Composite Index lost 0.6 percent by the lunch break, to 3,367.42 points and 3,141.10 points, respectively.
The People’s Bank of China raised the interest rates on open market operations by 10 basis points on Friday morning, reinforcing views that Beijing is opting for a "prudent and neutral" monetary policy stance this year.
"The move has some impact (in the stock market). First, it directly affects money market rates, and also it raised the expectation for further tightening," said Zhang Qi, analyst at Haitong Securities, noting that declining bond prices hurt insurers’ balance sheets.
Li Zheming, analyst at Datong Securities in Dalian, said liquidity concerns continue to weigh on sentiment. "The market is sensitive to the liquidity issue at the moment, but China didn’t offer fresh support after the holiday like we hoped."
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Market attention was also on Xiao Jianhua, the missing Chinese-born billionaire behind Tomorrow Group. The tycoon may have been abducted by Chinese agents, according to some media reports.
Shares in companies directly or indirectly controlled by Tomorrow Group slumped – Xishui Strong Year Co Ltd Inner Mongolia and Baotou Huazi Industry Co Ltd both tumbled 10 percent by midday, the maximum allowed.
Investors had muted response toward a private survey, which tends to focus more on smaller businesses, showing that China’s factory activity expanded for the seventh straight month in January, but at a slower pace.
Nearly all sectors in China’s mainland markets retreated at midday but defense stocks outperformed, rising nearly 1 percent.
In Hong Kong, the benchmark Hang Seng index dropped 0.5 percent, to 23,072.64 points, while the Hong Kong China Enterprises Index lost 0.2 percent, to 9,682.12 points.
The main index has lost 1.2 percent so far this week.
Most sectors fell in the city, led by losses among coal miners and steel firms, which were hurt by slumping commodity prices.
(Reporting by Jackie Cai and John Ruwitch; Editing by Jacqueline Wong)
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