Chinese Stock Markets Slide to Seven-Month Lows Amid Inflation Concerns

Chinese stock markets experienced significant declines, with indices hitting seven-month lows due to weak inflation data and economic worries. The CSI300 and Shanghai Composite Indexes fell by over 1%, with Hong Kong's Hang Seng Index down 1.4%. Deflation fears and troubled sectors further heightened investor concerns.

Chinese stock benchmarks plunged more than 1% to reach seven-month lows on Monday, exacerbated by weak inflation data that intensified economic concerns. Simultaneously, Hong Kong shares also tumbled amid overall gloomy regional sentiment.

The blue-chip CSI300 index in China closed down 1.2%, reaching its lowest level since early February, while the Shanghai Composite Index dropped 1.1%. Hong Kong's Hang Seng Index fell 1.4%. August data revealed that China's consumer price index accelerated at its fastest pace in half a year due to weather-related food price hikes but still fell short of market expectations. Worsening producer price deflation further highlighted the economic struggles.

The inflation data heightened expectations for further policy easing 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.

Concerns about entrenched deflation caused slumps in China's energy, raw materials, and metal stocks. "The lack of conviction around China's economic recovery continues to leave investors shunning," Yeap Jun Rong, market strategist at IG, said in a client note.

Property and tech stocks led the decline in Hong Kong, worsened by a 66% plunge in shares of China Renaissance Holdings following a 17-month trading suspension. Across the region, MSCI's Asia ex-Japan stock index fell by 1.32% while Japan's Nikkei index dropped 1.82%.

Among specific sectors, China's CSI300 index slipped 1.19%, with its financial sector sub-index declining 1.38%, the consumer staples sector dropping 1.3%, the real estate index falling 1.44%, and the healthcare sub-index decreasing 0.12%. The smaller Shenzhen index concluded the day 0.59% lower, while the startup board ChiNext Composite index inched up 0.063%.

At the close of trade, the Hang Seng index had dropped 247.34 points or 1.42% to 17,196.96. The Hang Seng China Enterprises index fell 1.68% to 6,002.91. Sub-indexes tracking Hang Seng energy shares dipped 4.6%, IT sector by 1.06%, financials by 1.28%, and property sector by 0.78%.

(With inputs from agencies.)