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China Investors to Focus on Europe, Key PMI Data

Tuesday's trading in the Chinese market may be affected by the July HSBC flash PMI data, the earliest monthly indicator of China's industrial activity, due out at 10:30 Beijing time, and growing worries about the euro zone.

The Shanghai Composite Index started the week with a 1.26 percent fall to close at a 40-month low of 2141.40, but off its intra-session lows.

The CSI300 Index of the top Shanghai and Shenzhen listings ended down 1.3 percent at its lowest since Jan. 16.

"Markets are playing catch up after we overshot on Friday. Some investors are also taking some profits on some of last week's top performers," said Jackson Wong, vice-president of equity sales at Tanrich Securities.

Market Factors:

Renewed concerns over the euro zone may also weigh on Asian markets. Stocks in Europe and the U.S. took a battering on Monday as fears over Europe's debt crisis returned to haunt markets. Spain is the epicenter of the current bout of fears, with investors increasingly concerned that the country will not be able to turn its public finances around without outside help.

A forecast from a Chinese central bank adviser that China's economy could wane further in the third quarter also deepened concerns about the global slowdown. China's economic growth slowed to a three-year low of 7.6 percent in the second quarter.

Aside from external factors, the rainstorms that hit Beijing over the weekend and killed 37 people has damaged investor confidence.

Meanwhile, yet another local government tweaked its property policy to boost demand for housing. The eastern city of Nanjing held a press conference Monday afternoon to announce measures to stimulate consumption, including rebates for first home buyers and relaxed restrictions for some buyers. While Beijing has said it would maintain property curbs to prevent housing prices from rebounding, the central government is supportive of owner-occupier purchases.

As the Olympic games draw near, investors are talking about the "Olympic curse," Chinese stocks have fallen for four out of the five Olympic games which have been held since the markets' inception.

Stocks to Watch:

Insurers, Broker Shares - China's insurance regulators will allow insurers to outsource their investment management to brokers and fund managers. The rules, effective immediately, are part of reforms to lift insurers' investment returns, they will be especially beneficial to smaller insurers without their own dedicated investment units.

Coming Up This Week:

TUESDAY: China HSBC Manufacturing PMI, Hong Kong Trade Balance, South Korean Consumer Confidence, Japanese Trade Balance, Australian CPI, New Zealand Trade Balance
WEDNESDAY: The Reserve Bank of New Zealand Rate Statement, New Zealand Interest Rate Decision, South Korean Gross Domestic Product, Bank of Japan Governor Shirakawa Speaks
THURSDAY: Singaporean Industrial Production, South Korean Current Account, South Korean GDP, Japanese Core CPI, Japanese Retail Sales
FRIDAY: Indian Bank Loan Growth, Indian Foreign-Exchange Reserves

—By Cheng Lei, Special to CNBC.com; Reuters contributed to this report