China stocks dip on slowdown fears; Bond Connect aids Hong Kong shares

* SSEC flat, CSI300 -0.4 pct, HSI +0.1 pct

* China markets largely priced in solid earnings growth

* Bond Connect helps lift Hong Kong financials

SHANGHAI, July 3 (Reuters) – China stocks kicked off the
mid-year earnings season on a cautious note on Monday, as
optimism about companies’ interim results was offset by concerns
of economic slowdown in the second half and lingering fears of
monetary tightening.

But Hong Kong stocks started July trading higher, as
financials – the biggest beneficiary of the newly-launched “Bond
Connect” with China – rose while small- and mid-caps gained on
the back of new Beijing rules letting insurers buy Hong Kong
shares via the Shenzhen Connect.

At the lunch break, China’s blue-chip CSI300 index
was down 0.4 percent, to 3,653.43 points, while the Shanghai
Composite Index was unchanged at 3,193.72 points.

The market has largely priced in an upbeat earnings season,
which starts on Monday.

As of June 29, 1,210 Chinese “A-share” firms had issued
guidance for interim results for 2017, and 72 percent of those
saw earnings growth, according to UBS Securities.

Growth guidance was particularly strong in sectors including
non-ferrous metals, electronics, property, light manufacturing
and chemicals, it said.

Although solid earnings help short-term sentiment, “we
reiterate our view that earnings growth could slow to 5 percent
in H2 and recommend investors to be more defensive,” wrote UBS
analyst Gao Ting, who warned that financial regulation will
likely remain tough.

Echoing concerns about liquidity, OCBC analyst Tommy Xie
cautioned that “it may be too early for market to lower the
guard against the regulatory tightening as we think financial
de-leverage remains top policy priority for China.”

He said July will be another important month to monitor
given that during it, sizable loans made under the central
bank’s medium-term lending facility (MLF) will mature.

Small-caps outperform blue-chips on Monday, with the SSE 50
Index dropping 0.6 percent, while the start-up board
ChiNext was up nearly 1 percent.

Financial and consumer stocks fell
sharply on profit-taking but commodity shares rose
on the back of higher raw material prices triggered by recent
dollar weakness.

HONG KONG

In Hong Kong, the Hang Seng index added 0.1 percent,
to 25,784.79 points, while the Hong Kong China Enterprises Index
gained 0.4 percent, to 10,403.57.

Index heavyweight HSBC Plc – which on Monday
conducted the first deal under the “Bond Connect” – rose nearly
2 percent, while BOC Hong Kong, another beneficiary of
the scheme that allows foreign investors to buy China bonds,
jumped more than 3 percent.

Hong Kong’s small-caps and mid-caps rose
sharply after Beijing on Friday allowed insurers to buy the
city’s stocks under the Shenzhen-Hong Kong Stock Connect,
potentially boosting demand for smaller companies.

But the services index in Hong Kong was down 1.5
percent.

(Reporting by Samuel Shen and Adam Jourdan; Editing by Richard
Borsuk)

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