Chinese stocks hit 7-month low, HK shares sink amid deflation fears, Asia weakness

Chinese stock benchmarks dropped more than 1 per cent to seven-month lows on Monday as weak inflation data deepened economic worries, while Hong Kong shares sank amid gloomy regional sentiment.

China's blue-chip CSI300 index ended down 1.2 per cent, hitting the lowest level since early February. The Shanghai Composite Index was down 1.1 per cent. Hong Kong's Hang Seng Index lost 1.4 per cent.

Latest data showed that China's consumer prices index accelerated in August to the fastest pace in half a year, as food prices rose due to weather disruption, but was short of market expectations. Producer price deflation worsened, reflecting the underlying trend of a struggling economy.

The inflation data stoked expectations of further easing from authorities to stimulate growth, pushing Chinese long-dated bond yields to record lows and weakening the yuan .

"It's been a good trade to be long Chinese government bonds and underweight equity markets so far this year, and these numbers don't suggest anything has changed," said Ben Bennett, head of investment strategy and research at LGIM.

Highlighting fears that deflation could be entrenched, China's energy, raw materials and metal stocks slumped.

"The lack of conviction around China's economic recovery continues to leave investors shunning," Yeap Jun Rong, market strategist at IG, said in a note to clients.

Property and tech led the decline in Hong Kong, where sentiment was also dampened by a 66 per cent plunge in the shares of China Renaissance Holdings, which resumed trading after a 17-month suspension.

Around the region, MSCI's Asia ex-Japan stock index fell by 1.32 per cent, while Japan's Nikkei index was down 1.82 per cent.

China's blue-chip CSI300 index was down 1.19 per cent, with its financial sector sub-index 1.38 per cent lower, the consumer staples sector down 1.3 per cent, the real estate index down 1.44 per cent and the healthcare sub-index down 0.12 per cent.

The smaller Shenzhen index ended down 0.59 per cent and the startup board ChiNext Composite index was up 0.063 per cent.

At the close of trade, the Hang Seng index was down 247.34 points or 1.42 per cent at 17,196.96. The Hang Seng China Enterprises index fell 1.68 per cent to 6,002.91.

The sub-index of the Hang Seng tracking energy shares dipped 4.6 per cent, while the IT sector dipped 1.06 per cent, the financial sector ended 1.28 per cent lower and the property sector fell 0.78 per cent.