Bloomberg News

Hong Kong Stocks Fall as Merkel Rejects Euro Bonds, ECB’s Role

November 27, 2011

Nov. 25 (Bloomberg) -- Hong Kong stocks fell, sending the Hang Seng Index to its biggest weekly drop since September, after German Chancellor Angela Merkel ruled out joint euro-area borrowing and a bigger role for the European Central Bank in fighting the debt crisis.

HSBC Holdings Plc, Europe’s biggest lender, fell to its lowest in Hong Kong since April 2009. China Overseas Land & Investment Ltd., a state developer, retreated 1.3 percent after Industrial & Commercial Bank of China Ltd. Chairman Jiang Jianqing said he expects China will maintain tight monetary policy. Alibaba.com Ltd., a unit of the mainland’s biggest e- commerce company, fell 11 percent after Yuanta Securities Co. cut its rating on the stock.

The Hang Seng Index dropped 1.4 percent to 17,689.48 at the close, with all but six stocks falling in the 46-member gauge. The index fell 4.3 percent for the week, the steepest weekly decline since the period ended Sept. 23. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong declined 1.8 percent to 9,395.91.

“The German chancellor remains tough in her stance in dealing with the euro debt crisis, giving the impression that resolution for the crisis will be further delayed,” said Ben Kwong, Hong Kong-based chief operating officer of KGI Asia Ltd. “Investors worry about the economic future and slowdown of the global economy. The Hong Kong stock market continues to be under selling pressure because of the tightened liquidity.”

Hang Seng Drops

The Hang Seng Index tumbled 23 percent this year amid concern China will not loosen monetary policy and Europe’s debt crisis is worsening. Companies in the index traded at 9.6 times estimated earnings, down from 14.4 times on Dec. 31, according to Bloomberg data. The Standard & Poor’s 500 Index trades at 11.7 times.

Futures on the Standard & Poor’s 500 Index fell 0.2 percent today. The U.S. market was closed yesterday for Thanksgiving. The Stoxx Europe 600 Index slid 0.2 percent yesterday.

HSBC fell 1.7 percent to HK$56.10, its lowest close since April 2009. Cosco Pacific Ltd., which owns a port in Greece, dropped 2.9 percent to HK$8.47.

Euro bonds are “not needed and not appropriate,” German Chancellor Merkel said yesterday at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

Euro bonds would “level the difference” in euro-region interest rates, Merkel said. “It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.”

ECB Debate

Sarkozy said the leaders agreed to refrain from making demands of the independent ECB. French officials have suggested the body play a greater role in solving the crisis, perhaps by stepping up purchases of bonds issued by troubled countries. Germany and ECB President Mario Draghi are opposed to printing money to ease the financing squeeze.

China Overseas Land slid 1.3 percent to HK$12.20, while China Resources Land Ltd., a state-controlled developer, declined 2.8 percent to HK$10.32. ICBC’s Jiang said he expects China won’t ease monetary policy as inflationary pressure remains high, even though there’s room to adjust the provision of credit to “certain sectors.” He spoke yesterday in Cape Town, South Africa.

Alibaba Plunges

Alibaba slid 11 percent to HK$7.94 after Kelvin Ho, an analyst at Yuanta Securities, cut his rating on the stock to “hold” from “buy” and reduced the target price to HK$9 from HK$12. The company said yesterday that it sees “weakness” in membership subscriptions and higher investment costs affecting next year’s results.

“Growth is muted and we see pressure on profitability,” Ho said. “Earnings and revenue contribution will come much later than originally expected.”

Futures on the Hang Seng Index slid 1.3 percent to 17,645. The HSI Volatility Index rose 1 percent to 36.10, indicating options traders expect a swing of 10 percent in the benchmark over the next 30 days.

--Editors: Jim Powell, John McCluskey

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editors responsible for this story: John McCluskey at j.mccluskey@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net


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