September 26, 2016 / 4:31 AM / 2 years ago

China, Hong Kong stocks fall as recent rally shows signs of fatigue

* SSEC -0.7 pct, CSI300 -0.8 pct, HSI -0.7 pct

* Valuations in HK, China look stretched - Deutsche Bank

* China property shares fall after Nanjing home purchase curbs

SHANGHAI, Sept 26 (Reuters) - China and Hong Kong stocks started the week on a bearish note, tracking Asian markets lower on Monday morning, as their recent rally showed signs of fatigue.

The markets’ sluggish performance came after losses on Wall Street and as investors turned their attention to American politics ahead of the first U.S. presidential debate.

China’s blue-chip CSI300 index fell 0.8 percent, to 3,250.53 points by the lunch break, while the Shanghai Composite Index lost 0.7 percent, to 3,012.34 points.

In Hong Kong, both the Hang Seng index and the Hong Kong China Enterprises Index fell 0.7 percent.

“There is still some room for further rallies, despite the indices showing a few signs of fatigue,” Christian Nolting, Global Chief Investment Officer at Deutsche Bank Wealth Management wrote, citing relative attractive dividends in China and Hong Kong.

“Nonetheless, valuations look stretched at the moment. Any further rally in China and Hong Kong equities may therefore require earnings to improve. At the same time, policy and economic uncertainty in the rest of the world represent a downside risk for equity markets in general.”

Trading turnover remained thin in China, showing many investors were cautious ahead of the long National Day holiday starting on Oct. 1, when Chinese markets will close for a week.

Most sectors fell in China, with real estate and raw material stocks, leading the decline.

China’s eastern city of Nanjing said on Sunday it would restrict home purchases, becoming the latest target of a government crackdown on feverish investment that pushed home prices up in second- and third-tier cities.

Bucking the trend, China’s coal stocks, including Datong Coal, Yanzhou Coal and Shanxi Luan were firm, after a request by steelmakers for coal miners to ramp up coking coal production to bring down prices was rejected by the government.

In Hong Kong, all main sectors fell, with raw material and energy shares leading the fall.

Reporting by Samuel Shen and John Ruwitch; Editing by Jacqueline Wong

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