China, Hong Kong stocks fall on weak economic data, new property rules

On Monday, China and Hong Kong's stocks experienced a decline as recent economic activity data revealed ongoing economic imbalances. The blue-chip CSI300 Index dropped 0.8% by midday, while the Shanghai Composite Index decreased by 0.2%. In Hong Kong, the Hang Seng Index fell 0.7%.

Official figures released on Monday indicated that China's factory activity had grown in August due to increased demand, yet it continued to contract for the second month in a row. Simultaneously, both services and construction sectors remained weak, highlighting the deepening economic disparities.

UBS Securities' Chief China Economist, Yu Song, anticipated a subsequent round of support later in the year, citing "greater risks of not attaining the annual growth objective." This market sentiment was further undermined by a decline in property shares following China's announcement on Friday of measures to diminish developers' reliance on presale funds.

Zhang Xiaoxi, an analyst at Gavekal Dragonomics, explained that "the endeavor to shrink the presales system will result in a decline in housing starts." He further predicted that more private-sector developers would exit the market as banks prefer state-owned developers, given that presales still constitute approximately 75% of new housing sales by the end of 2025. Zhang's assessment suggests that "the changes will trigger disruptions," with the potential for "more private-sector developers to leave the market."

Additionally, an index tracking China-listed real estate companies declined 1.4%, while the Hang Seng Mainland Properties Index fell nearly 6%. The sharp drop in gold-related stocks followed US Federal Reserve Chairman Kevin Warsh's stern remarks on Friday, which triggered a sell-off in the yellow metal. Despite this, Chinese banks witnessed a rise after the nation's largest banks announced their strongest first-half profits since the height of the property crisis.