China stocks extend declines as growth slows; Nikkei aims at two-decade high

Chinese equities extended their declines after the nation reported slower growth in the third quarter, with markets there underperforming compared with broad gains across the Asia-Pacific region.

Data released Thursday showed China’s economic expansion slowed to 6.8% in the third quarter, down from 6.9% in the second quarter, as Beijing’s efforts to clamp down on off-balance sheet lending and corporate leverage weighed on growth.

The Shanghai Composite Index

SHCOMP, -0.34%

 was last down 0.5% and the Shenzhen main board

399106, -0.82%

 slipped 0.4%. In Hong Kong, the Hang Seng Index

HSI, -1.66%

 was down 0.2%, after opening higher.

While the third-quarter growth numbers met expectations, markets were nonetheless positioned for an upside surprise, after Chinese central bank Gov. Zhou Xiaochuan predicted the economy would touch the 7% growth rate in the second half of this year.

“Traders may position for further weakness into the year-end, suspecting financial curbs will continue to have a negative impact on growth in China,” said Stephen Innes, head of trading for Asia at Oanda.

But with the key Chinese Communist Party congress in session this week, there was pressure to maintain market stability, say analysts, and they expect some last minute buying through state-owned funds to prop up shares.

Still, the latest set of Chinese data was robust in light of China’s ongoing efforts to clamp down on the economy’s steep leverage. Industrial production, a main gauge of manufacturing activity, rose 6.6% in September from a year earlier while retail sales rose 10.3%.

“Despite the stable GDP growth and September activity data, we continue to believe that growth momentum will slow in the coming months,” said analysts at Nomura, after the data was released. They expect real gross domestic product growth to slow to 6.6% in the fourth quarter.

Elsewhere in the region, Japan’s Nikkei Stock Average

NIK, +0.40%

 was up 0.4%, on track to post another two-decade closing high. The yen’s

USDJPY, -0.30%

 0.7% drop overnight against the U.S. dollar helped lift exporters, with auto makers rising about 0.7%, while insurance firms notched gains of more than 1%.

Japanese gains were aided by data showing Japanese exports rising for the 10th straight month in September, helped by a weaker yen and strong overseas demand for semiconductors.

Elsewhere in the region, Australia’s S&P/ASX 200

XJO, +0.10%

  was flat, with gains limited by a weakness in metal prices and mixed third-quarter earnings from oil and gas companies. Santos

STO, +1.18%

  was up 1.2% on a strong quarter while Woodside Petroleum

WPL, -1.81%

  lost 1.8% as revenue missed some estimates.

The lackluster Australian markets came despite a slightly better-than-expected jobs report, with the country’s unemployment rate on a seasonally-adjusted basis falling to 5.5% in September from 5.6% in August.

In Taiwan, the Taiex

Y9999, +0.37%

 was up 0.4%. Broker Jefferies said many stocks remain undervalued there, despite the benchmark trading at about two-decade highs. Index majors Largan Precision

3008, +2.68%

 was up 1.9%, with Hon Hai

2317, +1.35%

 , also known as Foxconn Technology , and Taiwan Semiconductor

2330, +0.63%

 adding 1.5% each.

— Liyan Qi and Grace Zhu contributed to this article.

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