HONG KONG - Onshore Chinese shares fell for a third-straight day, reversing midday gains in Hong Kong after the Shanghai share index closed below 2,000 points for the first time in nearly four years on concern that stricter capital rules for banks may hurt lending.
The state-run China Securities Journal newspaper reported that Basel III requirements could raise the capital adequacy ratio at the country's six biggest banks by up to 50 basis points, potentially limiting their capacity to lend and support growth in the world's No.2 economy.
The Hang Seng Index ended down 0.1 per cent, while the China Enterprises Index of the top Chinese listings in Hong Kong shed 0.4 per cent, both reversing midday gains.
In the mainland, the CSI300 Index of the top Shanghai and Shenzhen listings shed 1.2 per cent. The Shanghai Composite Index ended down 1.3 per cent at 1,991.2, the first time it closed below 2,000 points since January 2009.
Over the month, the Shanghai Composite has lost 3.8 per cent, while the CSI300 is down 4.6 per cent, compared with the China Enterprises Index's 0.5 per cent loss.
"This divergence between A and H share performance will continue at least until the year's end. There is a long list of A-share IPOs waiting for approval and that's not going to impress investors," said Larry Jiang, chief strategist at Guotai Junan International Securities.
The Hang Seng Index A/H premium index opened at 95.8, its lowest intra-day level since June last year, but ended at 96.5. It has closed below 100 on all but two sessions since mid-October, suggesting the premium that onshore shares once traded over their offshore peers has been wiped out.
Turnover in Shanghai jumped 24 per cent from Monday, while Hong Kong improved only slightly, still some 7 per cent below its average in the past month.
Speculation in the market that the amount of lockups expiring in December could double from November weighed on the A-share market, according to Hong Kong-based traders at a major American brokerage.
They added that steep losses in small-cap names listed in the mainland worsened on fears that prospective listings could suffer from profit declines after failing to impress in pre-listing marketing. The CSI500 Index dived 3.6 per cent.
On Tuesday, industrial counters were weak in the mainland despite official data from the National Bureau of Statistics showing Chinese industrials returning to profit growth in October.
Shanghai-listed Sany Heavy Industry slid 3.1 per cent to its lowest in more than two years. It is set for a second-straight annual loss, down 33.6 per cent, compared to the 9.5 per cent loss on the Shanghai Composite and 8.3 per cent loss on the CSI300.
China Rongsheng tumbled 6.7 per cent to its lowest close in a month after the company said that its chairman had stepped down just three months after the company posted its sharpest fall in half-year net profit.
Over the past month, analysts have cut forward 12-month earnings forecasts for MSCI China industrials by 2.7 per cent, the sixth straight month of cuts, according to Thomson Reuters I/B/E/S.
Investors will be looking at China's annual Central Economic Work Conference, which is typically held in mid-December, for clues on the tone of economic policies in 2013.
The China Securities Journal also reported on Tuesday that China is likely to target growth of 7 to 7.5 per cent and will remain prudent on monetary policy - denting hopes for more aggressive policy easing.
The Chinese banking sector ended broadly weaker in Hong Kong, but reversed early losses in the mainland. Bank of China slipped 0.3 per cent in Hong Kong but edged up 0.4 per cent in Shanghai.
China Resources Enterprises (CRE) led percentage gains among Hang Seng Index components, rising 2.8 per cent to a six-month high on media reports that it plans to purchase a stake in French retailer Carrefour SA.
The Macau casino sector was broadly stronger on hopes of a similar special dividend payout after Las Vegas Sands, parent of Sands China, approved a US$2.75 (S$3.36) per share special dividend.
Sands China was up 1.8 per cent, while MGM China jumped 3.4 per cent.