Bloomberg News

Chinese Stocks in Hong Kong Cap Worst Quarterly Loss Since 1998

September 30, 2011

Sept. 30 (Bloomberg) -- A gauge of Chinese stocks traded in Hong Kong fell, capping the biggest quarterly loss since 1998, on signs growth is slowing amid government measures to curb inflation and faltering overseas demand for exports.

The Hang Seng China Enterprises Index, which tracks so- called H shares, sank 3.9 percent to 8,917.36 at the 4 p.m. local-time close, the worst performer among Asia’s benchmark indexes. China National Building Material Co. tumbled 11 percent after a gauge of manufacturing contracted for a third month. Agricultural Bank of China Ltd. dropped 8.5 percent as central bank data showed savings were headed for the first quarterly decline in almost 20 years.

“There’s growing worry about a sharp slowdown in growth in China,” said Steven Leung, director of institutional sales in UOB-Kay Hian Holdings Ltd. in Hong Kong. “Since the market sentiment overall is quite weak, people will only respond to negative news.”

The H-share gauge tumbled 29 percent this quarter, the sixth-worst performer among 95 global benchmark indexes tracked by Bloomberg and the steepest decline since the three months to June, 1998, when the Asian financial crisis helped send the index 39 percent lower. Stocks have fallen as China raised interest rates and reserve-requirement ratios for banks to cool inflation that’s at the highest level in almost three years.

More than half the global investors surveyed by Bloomberg predict Chinese growth will slow to less than 5 percent annually by 2016, according to results released yesterday. Hong Kong’s markets were closed yesterday as a typhoon battered the city.

Manufacturing Gauge

China National Building dropped 11 percent to HK$6.73, completing a 56 percent rout since June. Anhui Conch Cement Co., China’s biggest cement maker, lost 8.9 percent to HK$21.60, the lowest close since Nov. 29.

The reading of 49.9 for the September purchasing managers’ index, released by HSBC Holdings Plc and Markit Economics today, was unchanged from August and compared with a preliminary 49.4 figure published last week.

Agricultural Bank tumbled 8.5 percent to HK$2.58, the most since the stock’s debut in July last year and capping a 37 percent retreat this quarter. China Minsheng Banking Corp. dropped 7.7 percent to HK$4.79.

Deposits at Chinese banks grew 27.5 billion yuan in July and August, 98 percent less than a year earlier, central bank data show. Savings at the nation’s four biggest lenders fell 420 billion yuan in the first half of September, according to the China Securities Journal, controlled by the state-run Xinhua news agency. Deposits haven’t fallen in a quarter since at least 1992, data compiled by Bloomberg show.

Developers Drop

Asian Citrus Holdings Ltd. was the biggest decliner among stocks traded on the broader Hang Seng Composite Index. The shares plunged 28 percent to HK$3.62, the most in almost two years.

Evergrande Real Estate Group Ltd., China’s second-biggest developer by sales, led declines among the nation’s builders in on concerns their sales will weaken this year.

Evergrande tumbled 17 percent to HK$2.44, the biggest drop since the shares debuted in 2009. Agile Property Holdings Ltd. fell 14 percent to HK$5.15, the lowest since April 28, 2009.

“The traditional peak property sales season in September failed to show strong records,” said Danny Bao, a Hong Kong- based analyst at Daiwa Securities Capital Markets. “That worried investors. Some long-term investors are even selling off.”

Property Sales

Property transactions in September dropped 13 percent from August, according to SouFun Holdings Ltd., China’s biggest real estate website that tracks 20 cities. Chinese developers face an “increasingly severe” credit outlook, which may force them to cut prices and turn to costlier funding sources as sales weaken, Standard & Poor’s said on Sept. 27.

U.S. Securities and Exchange Commission Enforcement Director Robert Khuzami said the Department of Justice is reviewing allegations of accounting fraud at Chinese companies operating out of the Asian nation, according to an interview with Reuters.

In the past year, regulators have intensified scrutiny of China-based companies listed on U.S. exchanges amid concern that the firms weren’t complying with accounting standards. The SEC’s investigation has focused on so-called reverse mergers, in which closely held firms buy shell companies that allow them to sell shares on exchanges without the scrutiny that would surround an initial public offering.

--Editors: Richard Frost, Darren Boey

To contact the reporters on this story: Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net.

To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.net.


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