* China stocks fall after Monday's steep selloff
* CSI300 -0.37%, HSI -1.03%; SSEC edges up 0.14%
* Education shares continue slide on regulation worries
* Delta variant behind cluster in city of Nanjing
SHANGHAI, July 27 (Reuters) - Chinese blue-chips and Hong
Kong's benchmark share index fell to fresh lows for the year on
Tuesday on persistent worries about the impact of tighter
government regulation, while a surge in COVID-19 cases dealt a
further blow to sentiment.
At the midday break, China's blue-chip CSI300 index
was down 0.37%, extending Monday's 3.2% selloff, with
losses across the financial, consumer staples and real estate
Hong Kong's benchmark Hang Seng Index fell 1.03%
after its 4.1% drop in the previous session, and the Hang Seng
China Enterprises Index slipped 1.64%.
Falls were wide-ranging, with the CSI financial sector
sub-index down 1.36%, the consumer staples sector
off 1.1%, the real estate index 2.95%
lower and the healthcare sub-index down 0.92%.
In Hong Kong, the IT sector fell 4.7% and the Hang
Seng Tech index slumped 3.17%, hitting its lowest-ever
The Shanghai Composite index was able to eke out a
gain led by energy and materials firms, up 0.14% to 3,472.40
Monday's shakeout was spurred by new rules reining in
China's $120 billion private tutoring sector, sending some
shares crashing more than 45%, and new regulatory moves
targeting technology and property.
Education shares continued to slide, with New Oriental
Education & Technology Group Co falling 2.63%, taking
its drop over the last three sessions to near 70%, while the CSI
education index slipped 2.22%.
Anita Chu, an analyst at CCB International, said the
unfavourable regulatory environment left little room for a
business turnaround, and issued a downgrade and reduced target
price for New Oriental.
"If the final version of the policy comes to resemble its
current form, we envision a worst-case scenario whereby existing
listed-AST (after-school tutoring) operators will be compelled
to spin-off their K9 AST operations from the listco, or else
de-list by way of privatisation"
"According to our estimates, the potential spin-off of K9
AST operations would take 60-70% off the earnings of New
Oriental and 80-90% off (New York-listed) TAL Education."
In Hong Kong, heavily indebted developer China Evergrande
Group extended its losses, spiralling 11.33% lower to
new four-and-a-half year lows, after the company said it would
cancel a special dividend proposal.
The broader property sector in Hong Kong edged 0.32%
higher after slumping on Monday, but real estate A-shares
extended losses, falling 2.95%.
Adding to broader concerns about the economic outlook,
profit growth at China's industrial firms slowed for a fourth
straight month in June, as high raw material prices weighed on
A surge in highly contagious Delta variant COVID-19 cases
centred on the eastern city of Nanjing also spurred concern on
But Zhiwei Zhang, chief economist at Pinpoint Assetm
Management said broader economic concerns were contained for
"The market correction seems to reflect some investors'
concern about government's policy stance on the capital market.
We don't think investors are concerned about the economy at this
stage," he said in an emailed comment.
"Note that the equity market corrected but the FX market has
been stable. This is different compared to, say, the episode of
market turmoil in 2015, when stock market correction was
accompanied by significant renminbi depreciation."
China's yuan was quoted at 6.476 per U.S. dollar
around midday on Tuesday, 0.1% firmer on the day.
(Reporting by Andrew Galbraith; Additional reporting by Samuel
Shen; editing by Richard Pullin)