China stocks edged lower on Wednesday, after foreign exchange reserves fell below a psychological level, weighing on already fragile investor sentiment amid tightening signals from the central bank.

Bearish inclinations spilled over to Hong Kong, where capital outflow concerns resurfaced following recent gains by the US dollar, which make emerging markets less attractive. 

On the mainland, both the CSI300 index and the Shanghai Composite Index fell 0.3 per cent, to 3,354.59 points and 3,142.93 points respectively.

China's foreign exchange reserves unexpectedly fell below the closely watched $3 trillion level in January for the first time in nearly six years. Still, the monthly drop was the smallest pace in seven months due to Beijing's tighter capital controls.

State media said China's financial markets shouldn't be too sensitive to changes in the size of foreign exchange reserves, as that is unnecessary.

Still, the decline in foreign reserves is denting market sentiment, although the negative impact is limited, according to Tian Weidong, analyst at Kaiyuan Securities in Xi'an.

He said investors were also concerned about US President Donald Trump's hawkish stance towards China.

"They are worrying about uncertainties in the world, worrying about Trump and also concerned if there's going to be a trade war," Tian said.

On mainland markets on Wednesday, energy stocks suffered the most in a board-based retreat, with an index tracking the sector down 0.8 percent at the lunch break, as oil prices extended losses after the United States reported growing crude stockpiles.

Bucking the broad trend was defence stocks, which added 1.2 per cent on restructuring hopes.

In Hong Kong, the Hang Seng index slipped 0.1 per cent, to 23,310.29 points, while the Hong Kong China Enterprises Index was barely changed, at 9,843.56 points.

The dollar index hold ground in early trading after hitting a one-week high in the previous session.

Most sectors in Hong Kong lost ground by the lunch break, while a measure of property developers gained 1.5 per cent as investors piled into real estate plays.

Index heavyweight China Overseas Land & Investment Ltd jumped 5 per cent at midday.

Source :Times Of Oman