Bloomberg News

Hong Kong Stocks Fall, Post Biggest Quarterly Loss Since 2001

September 30, 2011

Sept. 30 (Bloomberg) -- Hong Kong stocks fell, dragging the Hang Seng Index to its biggest quarterly loss in a decade, as U.S. economic reports failed to allay concern the global economic recovery is stalling.

Li & Fung Ltd., a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., dropped 3.6 percent. Chinese stocks traded in Hong Kong slumped after a report the U.S. is investigating allegations of accounting fraud at Chinese companies. Gome Electrical Appliances Holding Ltd. tumbled 22 percent after Credit Suisse Group AG downgraded the stock. Travel Expert Asia Enterprises Ltd. plunged 25 percent in its Hong Kong trading debut.

“People are still very uncertain about the macro-economic outlook,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Sentiment ebbs and flows very quickly nowadays.”

The Hang Seng Index dropped 2.3 percent to 17,592.41 as of the close of trading in Hong Kong, dragging the measure down to a 22 percent drop this quarter, its biggest decline since the period ended September 2001. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong slid 3.9 percent to 8,917.36 today. Financial markets in Hong Kong were closed yesterday because of a typhoon.

U.S. Stocks

Futures on the Standard & Poor’s 500 Index slipped 0.9 percent today. The index rose 0.8 percent yesterday in New York after applications for jobless benefits dropped to the lowest since April and revised gross domestic product numbers showed the U.S. economy grew faster in the second quarter than initially estimated.

Global equities advanced yesterday after Germany’s lower house voted to expand a European bailout fund. Confidence that the 440 billion euro ($599 billion) facility will be in place by mid-October allows the region’s finance chiefs next week to discuss enacting a permanent rescue fund that provides more capital and tool for managing defaults.

“I’m not convinced that this bailout package is going to be remotely enough for the euro zone itself,” Wilbur Ross, the billionaire chairman of private-equity firm WL Ross & Co., said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “I think it should start with a ‘T,’ not a ‘B,’” he said, referring to trillions instead of billions.

Monthly Loss

Three of the four Hang Seng industry groups declined today, with about five stocks falling for each that gained. The Hang Seng Index has plunged 14 percent this month, its largest monthly loss since October 2008, on concern the global economy will enter a recession amid Europe’s debt crisis and slowing U.S. economic growth. The gauge fell for its fourth consecutive weekly decline.

Li & Fung slumped 3.6 percent to HK$13.22. Techtronic Industries Co., an electronics maker that counts North America as its biggest market, lost 0.4 percent to HK$5.29. HSBC Holdings Plc, Europe’s biggest lender by market value, slid 1.9 percent to HK$60.90.

So-called Chinese H-shares, or Chinese companies traded in Hong Kong, slumped on a report that a top U.S. securities regulator said the Department of Justice is reviewing allegations of accounting fraud at firms operating out of the Asian nation. Chinese Internet stocks tumbled in New York trading yesterday following the report.

China Accounting Investigation

The U.S. Justice Department are “actively engaged in this area,” Securities and Exchange Commission Enforcement Director Robert Khuzami said in an interview with Reuters that was published yesterday.

“With the latest movement from the U.S. securities commission, people are trying to avoid risk,” said Steven Leung, director of institutional sales in UOB-Kay Hian Holdings Ltd. in Hong Kong. “There’s a growing perception that’s there’s risk in this area of investment. Also, there’s growing worry about a sharp slowdown in growth in China. Since the market sentiment overall is quite weak, people will only respond to the negative news.”

Also in China, a gauge of manufacturing shrank for a third month, the longest contraction since 2009, as measures of new orders and export demand declined.

China Banks, Coal

China Resources Land Ltd., a state-controlled developer, tumbled 8.5 percent to HK$8.49. Industrial & Commercial Bank of China Ltd., China’s largest lender by market value, dropped 5.5 percent to HK$3.82. China Construction Bank Corp., the second- biggest lender, slumped 5.7 percent to HK$4.79.

China Coal Energy Co., the nation’s third-largest coal producer by market value, fell 7.9 percent to HK$7.07. China Shenhua Energy Co., the listed unit of China’s biggest coal producer, slid 6.1 percent to HK$31.05.

Coal producers also fell after the China Securities Journal reported the nation’s plans to limit the mining of coal used in steelmaking under regulations that the National Energy Administration will issue soon. Companies seeking government approval to explore for coal will face more stringent criteria, citing people that it didn’t identify.

People Are Watching

“People are watching China a lot more closely because there’s not a lot of growth supporting global economies elsewhere,” said Pengana’s Schroeders. “It’s an ongoing concern that China’s miracle at some stage will stop. Whether policymakers will be able to adjust to highly volatile circumstances outside of the Chinese economy is being tested constantly.”

Among other stocks that fell, Gome Electrical Appliances, a Chinese appliance retailer planning a property venture with its jailed founder, tumbled 22 percent to HK$1.83. Credit Suisse yesterday downgraded the stock to “neutral” from “outperform,” citing concern about corporate governance.

Travel Expert Asia Enterprises, which started trading in Hong Kong today, plunged 25 percent to 47 Hong Kong cents.

Futures on the Hang Seng Index fell 2.9 percent to 17,423. The HSI Volatility Index rose 5.1 percent to 42.77, indicating options traders expect a swing of 12 percent in the Hang Seng Index in the next 30 days. Shares on the index traded at 9.4 times forecast earnings, compared with 11.7 times for the Standard & Poor’s 500 Index.

--Editors: Jason Clenfield, Drew Gibson.

To contact the reporter on this story: 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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