China stocks pulled back on Tuesday morning on fresh signs the government was extending steps to defuse potential credit bubbles in the broader economy, reinforcing its recent tightening moves that have helped curb risk appetite.
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Hong Kong shares were also hit by weak global markets.
China’s CSI300 index and the Shanghai Composite Index lost 0.3 percent each, to 3,362.30 points, and 3,147.20 points, respectively by the lunch break.
Buyers were cautious after state media reported on Tuesday that China’s central bank had sent out so-called "window guidance" to some banks urging them to control their credit quotas starting in February.
Moreover, the People’s Bank of China (PBOC), which on Friday unexpectedly raised short-term interbank rates, reaffirmed its tightening bias by skipping open market operations for the third straight session, citing "relatively high level" of liquidity in the banking system.
"We believe strengthening financial regulations remain a near-term downside risk to the A-share market," wrote Gao Ting, head of China strategy at UBS Securities.
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Further deleveraging by the government "could put pressure on the A-share market," Gao said. UBS has a "neutral" view on China stocks.
Nearly all sectors were down in China, with energy and infrastructures shares leading the decline.
Material stocks rose on the back of a rebound in commodity prices.
HONG KONG
In Hong Kong, the Hang Seng index dropped 0.2 percent, to 23,310.59 points, while the Hong Kong China Enterprises Index was unchanged at 9,836.91.
The downside pressure was limited by rising capital inflows through the Shanghai-Hong Kong Stock Connect scheme. Chinese investors used over 17 percent of the daily quota in the previous session, compared with an average of nearly 11 percent in January.
Linus Yip, strategist at First Shanghai Securities Ltd, said "we still need to have a close watch on that for a while, to see if the trend is sustainable.
Energy sectors fell, down 0.7 percent in China and 0.8 percent in Hong Kong, as oil prices remained under pressure after losing nearly 2 percent on Monday.
But resource stocks were among the best performers in both markets, with sentiment lifted by a firm commodity market.
Shares in companies related to the missing Chinese-born billionaire Xiao Jianhua renewed their falls as Xiao’s whereabouts remained unclear.
(Reporting by Jackie Cai and John Ruwitch; Editing by Shri Navaratnam)
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