Bloomberg News

Hong Kong Stocks Decline on China Policy, Europe Debt Concern

November 17, 2011

Nov. 17 (Bloomberg) -- Hong Kong stocks fell for a third day, with the benchmark index closing at its lowest level in three weeks, as China signaled it will maintain its drive to tame inflation and Fitch Ratings said Europe’s debt crisis threatens U.S. banks.

Standard Chartered Plc, the U.K.’s second-largest lender, slid 2.9 percent in Hong Kong amid concern Europe’s crisis will spill over into the global financial system. Esprit Holdings Ltd., a clothier that counts Europe as its biggest market, sank 6.1 percent. China Overseas Land & Investment Ltd., the biggest mainland developer listed in Hong Kong, slid 1.8 percent after China’s central bank said it isn’t ready to lift price controls.

“There will be pressure on European banks as the crisis drags on and that might have some global impact,” said Yoji Takeda, who manages about $1.1 billion at RBC Investment Management (Asia) Ltd. in Hong Kong. “China is trying to fine- tune its monetary policy to orchestrate a soft-landing but at the same time they want to see lower property prices.”

The Hang Seng Index fell 0.8 percent to 18,817.47 as of the 4:00 p.m. close in Hong Kong, heading for its lowest close since Oct. 24. Three stocks dropped for each that rose in the 46- member benchmark index. The gauge slumped 3.6 percent last week amid speculation Italy would have to seek a bailout.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 1 percent to 10,228.65.

‘Revisiting Lows’

European lenders fell after Fitch said the creditworthiness of U.S. banks will deteriorate if Europe’s debt crisis spreads beyond the region’s five most-troubled nations. Standard Chartered dropped 3.2 percent to HK$161.20. HSBC Holdings Plc lost 0.4 percent to HK$60.50.

“Over the next few weeks, something has to happen in terms of the policy regarding the sovereign-debt issue in Europe,” Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $49 billion globally, told Bloomberg Television. “Otherwise, equity markets might revisit their lows again. The Italian sovereign debt blowup is not priced in as yet.”

Esprit declined 6.1 percent to HK$9.02 amid signs economic growth is slowing in Europe, where it gets 79 percent of sales. The Bank of England yesterday said Britain’s economy faces a “markedly weaker” outlook and Spain cut its economic forecast.

China Policy

Chinese property developers and lenders traded in Hong Kong declined after the mainland’s central bank said in a report yesterday it can’t loosen monetary policy. “The foundation of price stability is not yet solid,” it said.

China Overseas Land slid 1.8 percent to HK$13.06. China Resources Land Ltd., a state-owned developer, sank 4.1 percent to HK$11.14. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, fell 1.5 percent to HK$4.58.

The Hang Seng Index declined 18 percent this year, driving down its valuation to 10.2 times estimated profit, according to data compiled by Bloomberg. The price-to-earnings ratio reached a low of 9.4 times on Sept. 30.

Futures on the Hang Seng Index expiring this month lost 0.1 percent to 18,875. The HSI Volatility Index added 0.3 percent to 35.60, indicating options traders expect a swing of 10 percent in the gauge in the next 30 days.

Texhong Textile Group Ltd., a fabric maker, tumbled 11 percent to HK$1.94, the biggest decline on the Hang Seng Composite Index, after saying it will report a “substantial” decline in full-year profit.

Zoomlion Heavy Industry Science & Technology Co., China’s second-largest maker of construction equipment, sank 7 percent to HK$8.54. The company said a slowdown in China’s demand for cranes and excavators will continue next year because of slowing economic growth and cutbacks in railway building.

Of the 48 companies on the Hang Seng Composite Index that reported results since Oct. 11, 15 missed analysts’ estimates, while nine exceeded expectations, according to data compiled by Bloomberg.

--Editor: Jason Clenfield.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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