SHANGHAI: China stocks fell on Tuesday, with small-cap companies leading the decline, as March economic indicators showed a recovery is losing momentum, despite stronger-than-expected GDP data.
China’s blue-chip CSI 300 Index fell 1% by the lunch break, set to log the biggest daily drop in more than half a month, while Hong Kong’s Hang Seng declined 1.9%.
The market also tracked broad Asian stocks lower and the dollar climbed to more than five-month highs as stronger-than-expected US retail sales for March further reinforced expectations that the Federal Reserve is unlikely to be in a rush to cut interest rates this year.
Rising geopolitical tensions kept risk sentiment in check. Gross domestic product (GDP) grew 5.3% in January-March from the year earlier, comfortably above analysts’ expectations in a Reuters poll for a 4.6% increase and slightly faster than the 5.2% expansion in the previous three months.
However, a raft of March indicators released alongside the GDP data, including property investment, retail sales and industrial output, showed that demand at home remains weak and is retarding overall momentum.
“I think (strong headline GDP) was mainly from the January to February boost, whereas the March data largely disappointed,” said Woei Chen Ho, economist at UOB.
“Even the property investment contraction was worse than expected… there’s not much of an improvement in the outlook from here. I think there’s still downside risks to the economy. It’s pretty clear the property glut is still continuing.”
Shares in property developers lost 2.4% and tourism slumped 3.8%, while new energy and media firms lost 2.1% each. Tech giants listed in Hong Kong plunged 2.7%.
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“We believe continued policy easing is still necessary, especially on the demand-side,” Goldman Sachs said in a note.
The small-and-micro-cap CSI 2000 stocks slumped 5.4%, sending their weekly decline to nearly 10%, after the securities regulator issued rules on Friday to force unqualified companies to delist.
“With the normalization of company delisting, we expect there will be pressure on micro-cap stocks,” said Sinolink Securities in a note.
Analysts from Chasing Securities also said company earnings results will dominate recent market trend and recommend investors to wait for the broad market benchmark to stabilize.
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