China shares weighed by weak June factory data

BEIJING, July 1 (Reuters) - China shares dropped on Thursday, led by losses in industrial and material stocks after data showing soft factory activity in June raised concerns about an economic recovery.

** At the midday break, the Shanghai Composite index was down 0.07% at 3,588.55 points, while the blue-chip CSI300 index was down 0.23%.

** Among the worst-performing sectors, the industrial sub-index dropped 1.11% and the material sub-index lost 0.8%.

** Data showed China’s factory activity expanded at a softer pace in June, as the resurgence of COVID-19 cases in the export province of Guangdong and supply chain woes drove output growth to the lowest in 15 months.

** The manufacturing sector has gradually returned to normal but challenges linger, said Wang Zhe, senior economist at Caixin Insight Group.

** “In the second half of this year, the low base effect from last year will weaken. Inflationary pressure, coupled with the economic slowdown, is still a serious challenge for China.”

** The consumer staples sector was down 0.38% in the morning session, with home-grown beer brand Tsingtao Brewery Co leading losses with a near 2% drop.

** The smaller Shenzhen index was down 0.74%, the start-up board ChiNext Composite index was weaker by 0.46% and Shanghai’s tech-focused STAR50 index was down 0.59%.

** Shares of the new energy vehicle firms also dropped on Thursday. “The fundamentals of the new energy vehicle firms and supply chain sector are strong, but investors including us have some valuation concerns,” said Wang Qi, CEO at MegaTrust Investment.

** Investors are keenly watching out for the upcoming first-half earnings season, which will largely determine the market outlook and sentiment for the rest of the year, Wang Qi added.

** Hong Kong’s stock market is closed on Thursday for the Hong Kong Special Administrative Region Establishment Day.

** Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.26%, while Japan’s Nikkei index was down 0.52%. (Reporting by Cheng Leng, Luoyan Liu and Andrew Galbraith; Editing by Amy Caren Daniel)