HONG KONG (Nikkei Markets) -- Hong Kong shares fell after Moody's Investors Service downgraded China's sovereign rating by a notch on concern over eroding financial strength and slowing growth potential. Shanghai equities headed toward a seven-month low.
The Hang Seng Index fell 0.2% to 25,365.26 by midday. The Hang Seng China Enterprises index of mainland companies listed in the city shed 0.4%, with lenders and insurers contributing heavily to the decline. China Life Insurance and Bank of Communications slid at least 0.5%. Heavyweight Tencent Holdings lost 1.2% in its second day lower after an earnings-driven record run.
Geely Automobile Holdings fell 0.2% amid broad market losses. Its parent Zhejiang Geely Holding Group has agreed to buy a 49% stake in Malaysian carmaker Proton from DRB-Hicom, Financial Times reported, citing two people with knowledge of the agreement. The deal will also involve Geely taking control of Proton's Norwich-based unit, Lotus. Trading in DRB-Hicom, which was halted late Tuesday, remains suspended in Kuala Lumpur.
Moody's on Wednesday cut China's long-term local and foreign currency issuer ratings to A1 from Aa3, saying the nation's financial strength is expected to weaken over the coming years. The ratings agency said potential growth is likely to slow and be reliant on fiscal policy stimulus, contributing to higher debt across the economy.
"I do not think what Moody's has said is anything new. The concerns over China's debt levels have always been around," said Ronald Wan, chief executive at Partners Capital International. "While I do not want to downplay the downgrade as a negative, the impact on China asset markets will not be significant."
The Hong Kong observatory hoisted the Black Rainstorm Warning in the city Wednesday morning. Bourse-operator Hong Kong Exchanges and Clearing said the warning has not affected trading, which will continue as normal until the end of the afternoon trading session.
The Shanghai Composite fell 0.4% toward its lowest levels since October, while its Shenzhen counterpart was little changed. The Shanghai benchmark is down 3.4% in May so far, lagging behind the rest of Asia, as officials imposed curbs to rein in leverage and control financial risks.
Chinese electronics conglomerate LeEco said it will cut more than 300 jobs in its U.S. operations, as the company grapples with a cash shortage after a quick expansion. Trading at its unit Shenzhen-listed unit Leshi Internet Information & Technology has been halted since April 17.
Ping An Insurance Group and HSBC Holdings were among companies to invest in a $107-million fund-raising round by blockchain firm R3, South China Morning Post reported. Ping An Insurance fell 0.5%, while HSBC was up less than 0.1% by the noon break.
The world's largest personal-computer maker Lenovo Group dropped 0.8% after Chinese smartphone maker Huawei announced plans to enter the PC market, introducing its first line-up of three models at a press conference in Berlin.
China Resources Land advanced 0.7% after saying it will partner with North Realty Europe to acquire an office building in London for 300 million pounds ($389 million).
China Evergrande Group jumped 5.3% to HK$10.46 amid strong volume, taking its gains so far this week to more than 10%. Morgan Stanley initiated coverage of the mainland property giant with a price target of HK$12, according to Reuters.
China Shenhua Energy rose 1.9% to HK$19.38 after Nomura initiated coverage on the coal giant with a buy rating and target price of HK$21.94, citing attractive valuations.
Mining and commodities group Glencore fell 1.2% in Hong Kong after U.S.-listed global agribusiness major Bunge denied reports that it was in talks for a possible business combination with the Swiss major.
Coolpad Group said it received a going-concern notice from its auditors. The wireless equipment and service provider's shares have been halted for almost two months.
-- Nimesh Vora and V.Phani Kumar
--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.