Chinese and Hong Kong equities declined as weak economic data underscored the fragility of the country's recovery, while new measures aimed at overhauling China's housing presale system triggered a sharp selloff in property shares.

Gold-related stocks also weakened following hawkish signals from the US Federal Reserve, while strong first-half earnings from major Chinese banks offered some support to the broader market.

China's housing presale system, which allows developers to sell homes before construction is completed, has long been a cornerstone of the country's real estate market. Reforms targeting this model tend to weigh on developer shares because they affect cash flows and the funding structure that property firms have relied on for years. The presale model has come under scrutiny since the sector's debt crisis, when stalled projects and delayed deliveries left some buyers paying mortgages on unfinished homes, prompting policy discussions about shifting toward a system where developers are paid more fully upon completion.

The declines came against a backdrop of persistent weakness in Chinese economic indicators, which have pointed to an uneven recovery in the world's second-largest economy. Property-sector stress has been a recurring drag on sentiment since 2021, when defaults at major developers including China Evergrande rippled through the industry, and investor attention remains focused on both official policy moves and corporate earnings for signs of stabilization.

Hawkish signals from the Federal Reserve also weighed on gold stocks, as higher-for-longer US interest rates typically pressure non-yielding assets like bullion by lifting the opportunity cost of holding them. In contrast, major banks' strong first-half results provided a degree of support to the market, with large state-owned lenders having historically served as defensive anchors for mainland benchmarks during periods of sectoral weakness.

Source: Economic Times Markets