Bloomberg News

Hong Kong Stocks Snap 2-Day Gain as S&P Cuts Bank Credit Ratings

November 30, 2011

Nov. 30 (Bloomberg) -- Hong Kong stocks fell, with the benchmark index set to snap a two-day rally, after Standard & Poor’s cut credit ratings for lenders including Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc.

HSBC Holdings Plc fell 2.4 percent after the ratings firm also downgraded Europe’s biggest lender to A+ from AA-. Bank of China Ltd. and China Construction Bank Corp. slid in Hong Kong even after S&P upgraded both, giving them higher grades than most of their largest U.S. counterparts. Yanzhou Coal Mining Co. fell 4 percent after a BOC International analyst cut his investment rating on the company to “neutral” from “overweight.”

The Hang Seng Index fell 1.9 percent to 17,911.21 at the noon trading break in Hong Kong, set for a 9.8 percent drop this month. All but three stocks fell in the 46-member index. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 2.4 percent to 9,480.94. The gauge has lost 9.8 percent this month.

“The rating cuts may have a negative impact on investor sentiment,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “What investors are really paying attention to is whether policy makers are going to take steps to resolve the European debt situation.”

Ratings Downgrade

Bank of America Corp., Goldman Sachs and Citigroup had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders. S&P made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit. JPMorgan Chase & Co. was reduced one level to A from A+.

Financial firms were the biggest drag on the Hang Seng Index. HSBC dropped 2.4 percent to HK$57.25. Standard Chartered Plc., the U.K.’s No. 2 lender by market value, slid 2.2 percent to HK$158.40.

Chinese banks fell even after S&P upgraded Bank of China and China Construction Bank to A from A- and maintained the A rating on Industrial and Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks.

Bank of China lost 2 percent to HK$2.40, and China Construction Bank fell 2.5 percent to HK$5.17. Industrial and Commercial Bank dropped 2.3 percent to HK$4.31.

In Europe, the region’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis.

Yearly Loss

The Hang Seng Index has tumbled 22 percent this year amid concern China will not ease monetary policy further and Europe’s debt crisis is worsening. Companies in the index traded at 9.8 times estimated earnings, down from 14.4 times on Dec. 31, according to Bloomberg data. The Standard & Poor’s 500 Index trades at 12.1 times.

Yanzhou Coal slid 4 percent to HK$17.50 after BOC International analyst Lawrence Lau yesterday cut his investment rating on the firm and lowered earnings forecasts to reflect lower-than-expected contract price of hard coking coal.

Futures on the Hang Seng Index slid 1.3 percent to 17,865.

--Editor: John McCluskey

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


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