September 6, 2017 / 4:54 AM / 10 months ago

China, Hong Kong stocks fall amid rising N.Korean risks

* SSEC -0.3 pct, CSI300 -0.4 pct, HSI -1.0 pct

* U.S.-N.Korean tensions rise, but conflict unlikely - UBS

* China corporate earnings to slow in H2 - analyst

SHANGHAI, Sept 6 (Reuters) - China and Hong Kong stocks fell on Wednesday morning, in step with weakness in Asian markets and Wall Street’s slide as tensions in the Korean Peninsular continued to haunt investors.

Sectors such as financials and real estate, which outperformed in both markets recently, succumbed to profit-taking.

The CSI300 index fell 0.4 percent, to 3,840.96 points by the lunch break, while the Shanghai Composite Index lost 0.3 percent, to 3,374.73 points.

In Hong Kong, where markets are more vulnerable to portfolio flows and volatility, the Hang Seng index dropped 1.0 percent, to 27,457.00 points, while the Hong Kong China Enterprises Index lost 1.2 percent, to 11,052.60.

Risk appetite in Asia was curbed by an overnight drop in U.S. equities. The S&P 500 stumbled to its biggest single-day loss in about three weeks.

Geopolitical concerns continued to simmer following North Korea’s biggest-ever nuclear test on Sunday. Pyongyang is ready to send “more gift packages” to the United States, one of its top diplomats said on Tuesday.

UBS said in its monthly Asia Pacific investment report that although “U.S.-North Korea relations have perhaps reached their tensest point in decades”, military conflict is “unlikely”.

One possible risk stemming from the crisis, according to UBS China strategist Gao Ting, is potential trade friction between Beijing and Washington triggered by divergence toward a solution over the North Korea crisis.

“This nuclear issue...could affect Sino-American relationship, and trade is part of that bilateral relationship,” Gao said.

On fundamentals, Gao said China’s market was losing some upward momentum, having fully priced in the economic recovery, so investors could shift attention to structural opportunities - such as those created by state-owned enterprise (SOE) reforms.

“There will be no more upside surprises in terms of earnings,” Gao said, predicting profit growth at Chinese-listed firms may slow to 5 percent in the second half, from 18 percent during the January-June period.

Most sectors lost ground on Wednesday in both markets, led by financial shares.

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

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