China shares drop on virus resurgence fears, deepening factory deflation

Chinese shares dropped on Tuesday on fears about a second wave of coronavirus infections and as a sharp drop in the country's factory prices underscored the economic impact of the pandemic.

** At the midday break, the Shanghai Composite index was down 0.59% at 2,877.71 points.

** China's blue-chip CSI300 index was down 0.49%, erasing earlier gains, with its financial sector sub-index lower by 0.79%, the consumer staples sector up 0.51%, the real estate index down 1.25% and the healthcare sub-index up 0.68%. ** Wuhan reported on Monday its first cluster of coronavirus infections since a lockdown on the city, the epicentre of the outbreak in China, was lifted a month ago, stoking concerns of a wider resurgence. ** Wuhan also plans to conduct city-wide nucleic acid testing over a period of 10 days, according to an internal document seen by Reuters and two sources familiar with the situation. ** China's factory prices fell at the sharpest rate in four years in April, highlighting weakening industrial demand in the world's second-largest economy as the coronavirus pandemic slams global growth. ** The smaller Shenzhen index was down 0.65% and the start-up board ChiNext Composite index was weaker by 0.16%. ** Chinese H-shares listed in Hong Kong fell 1.69% to 9,821.44, while the Hang Seng Index was down 1.78% at 24,163.29. ** Shanghai's index tracking B-shares, shares that are traded in dollars in Shanghai and HK dollars in Shenzhen, plunged by 6.9% by mid-day break. ** The plunge in B-shares is likely a result of thin liquidity in the market, as there have been no significant changes in those companies, said Zhou Longgang, an analyst at Huachuang Securities. ** Chances of investors selling B-shares due to concerns over the local currency are low as China's relatively steady monetary policy could support the yuan, Zhou added. ** Shares of dual-listed Dongfeng Motor Corp rallied in both Shanghai and Hong Kong on Tuesday following a Reuters report on potential support from Wuhan's city government. ** Around the region, MSCI's Asia ex-Japan stock index was weaker by 1.22% while Japan's Nikkei index was down 0.17%. ** The yuan was quoted at 7.0937 per U.S. dollar, 0.07% firmer than the previous close of 7.0988.

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