Shanghai stock market slumped to its worst close in a month on Tuesday, after the preliminary reading of HSBC's Purchasing Managers' Index showed the country's manufacturing growth fell in April.

The benchmark Shanghai Composite Index plunged 2.57 percent, the biggest drop in almost a month, to 2,184.54. Shares in Shenzhen dropped 2.92 percent, and in Hong Kong, they fell 1.08 percent.

Securities brokerage, construction material and real estate stocks led the index lower, in total trading worth 82.2 billion yuan ($13.3 billion), almost the same as Monday.

The HSBC PMI fell to a two-month low of 50.5 in April from 51.6 in March. A reading above 50 indicates expanding activity.

Although still pointing to expansion, it missed most forecasts.

"The PMI reading is clearly below expectation, which to some extent shows the economic recovery is not as strong as investors had hoped," said Gui Haoming, a senior analyst with Shenyin & Wanguo Securities Co Ltd.

"The market appears cautious, and a correction in the A-share market is likely to continue."

The HSBC report was the first business indicator for China's second quarter, after weaker-than-expected growth in GDP for the first quarter was revealed earlier this month.

But not everyone was pessimistic about the short-term market performance.

Li Daxiao, from domestic securities brokerage Yingda, told China Daily that he expected the market to stabilize around the May Day holiday.

He added that in the second quarter, an increase in credit supply in March - which exceeded 1 trillion yuan - coupled with an awakening in overseas demand would provide greater impetus to the domestic economy.

The government is expected to launch a series of capital investment projects related to its urbanization programs, most likely spearheaded by investment in the transportation system, Li said.

A market report from brokerage firm Nomura said that since its Jan 30 peak, the MSCI-China Indices - which consist of a range of country, composite and non-domestic indices for the Chinese market - has corrected by 12 percent, and many individual stocks have corrected twice or more against the benchmark average.

Faced with current lower expectations, Nomura said it anticipated the MSCI-China would bottom out and start a trading-range rally in the rest of this month and May.

"Actually, the 7.7 percent GDP growth in the first quarter was not bad. It was just below expectation," said Wendy Liu, managing director and head of China equity research at Nomura.

Liu added that experts have been pricing in tightening risks based on the expectation of higher growth rates, meaning a discount in stock market valuations.

With slower growth and lower-than-expected inflation, that risk was being pushed out, she added.

A survey released by HSBC on Monday showed that 57 percent of Chinese fund managers were bullish about emerging economy stock markets in the second quarter, up from 29 percent in the first quarter.

Huang Tiantian contributed to this story.

xieyu@chinadaily.com.cn

(China Daily 04/24/2013 page13)