OK, I managed to send a dbus signal to set specific dns for a specific domain 
but this signal went to the initial dnsmasq started when system booted up.
So the dnsmasq started by the wifi sharing connection has no dbus interface and 
it doesn't read the /etc/hosts. It has totally static hardcoded configuration. 

The only way to overcome this issue was the very dirty solution of
putting dnsmasq in a wrapper script to remove the --no-hosts  parameter
:(

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https://bugs.launchpad.net/bugs/993298

Title:
  Please make NetworkManager-controlled dnsmasq respect /etc/hosts

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