Bloomberg News

Hong Kong Stocks Fall as Fed Offers No Stimulus, U.S. Sales Slow

December 14, 2011

Dec. 14 (Bloomberg) -- Hong Kong stocks fell for a fifth day after the U.S. Federal Reserve offered no new measures to spur growth and retail sales in the world’s biggest economy rose at the slowest pace in five months.

Li & Fung Ltd., a Wal-Mart Inc. supplier that gets more than half of its revenue from the U.S., fell 3.9 percent. Greenheart Group Ltd. plunged as much as 40 percent after the lumber processor’s parent Sino-Forest Corp. said it would default on bonds and miss its earnings report deadline. Huaneng Power International Inc. gained 4.7 percent after Standard Chartered Plc rated the utility “outperform.”

The Hang Seng Index fell 0.5 percent to 18,354.43, the lowest since Nov. 30. About five stocks declined for every four that gained in the 48-member gauge, which extended its longest losing streak since Nov. 21. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 0.7 percent to 9,888.15.

“Some of the market sentiment turned negative” and most investors are taking a wait-and-see approach after the Fed refrained from announcing new measures, said Patrick Yiu, managing director at Cash Asset Management Ltd. “Valuation is very attractive in Hong Kong, and bargain hunters are entering the market. Without a special direction in the market, some fund managers are parking their money in utility shares.”

The HSI Volatility Index lost 2.9 percent to 27.95 today, its lowest close since Dec. 2, indicating options traders expect a swing of 8 percent in the benchmark over the next 30 days.

Relative Decline

The Hang Seng Index tumbled 20 percent this year amid concern Europe’s debt crisis is slowing global growth. Companies in the gauge traded at 10 times forecast earnings, down from 14.4 times on Dec. 31, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index trades at 12.4 times.

Li & Fung slid 3.9 percent to HK$15. HSBC Holdings Plc, a European lender that gets about a fifth of its revenue from North America, retreated 1.8 percent to HK$58.70.

Futures on the S&P 500 rose 0.3 percent today. The index dropped 0.9 percent in New York yesterday after the Fed stopped short of another round of large-scale asset purchases to boost the economy. Stocks also fell as a report showed U.S. retail sales gained 0.2 percent last month, the slowest pace since June, missing the 0.6 percent median estimate of economists surveyed by Bloomberg.

The Fed said in a statement that the U.S. economy continues to expand even as global growth slows. The statement reiterated a warning from the central bank’s two previous meetings that “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

‘Nothing’ From Fed

“Nothing came out of the Fed meeting and that’s negative for the markets,” said Shintaro Takeuchi, a portfolio investment manager at Tokio Marine & Nichido Fire Insurance Co., which oversees the equivalent of $111 billion.

Greenheart sank 26 percent to 74 Hong Kong cents after its parent said it would default on part of its $1.8 billion debt. The company said its management and operations are independent from Sino-Forest, a Chinese timber producer fending off fraud allegations.

ENN Energy Holdings Ltd., a natural gas distributor in China, extended yesterday’s drop with a 7.6 percent decline after Moody’s Investors Services, Standard & Poor’s and Fitch Ratings put the company on review for a possible downgrade after it announced its plan with China Petroleum & Chemical Corp. to take control of China Gas Holdings Ltd.

Evergrande Real Estate Group Ltd., a Guangzhou-based developer, dropped 3.9 percent to HK$2.93 after saying its contracted home sales plunged 86 percent in November from a year earlier.

Utilities Advance

A measure of utility shares was the only one of the Hang Seng’s four industry groups to advance. Huaneng Power rose 4.7 percent to HK$3.99, and China Resources Power Holdings Co. gained 3.7 percent to HK$13.64 after Standard Chartered rated the stock “outperform.” Datang International Power Generation Co., a mainland power producer, increased 0.8 percent to HK$2.40 after the bank rated it “in-line.”

“We see further upside” in Chinese independent power producers as fuel costs decline, Standard Chartered analysts Evan Li and Dennis Ip wrote in a report dated yesterday. “We are cautiously positive on selective plays that could leverage such a cyclical recovery. A potential credit loosening would ease stress on the profitability of highly geared independent power producers.”

The outlook for Chinese power producers has risen on a recent increase in electricity tariffs and the prospect of more favorable industry policies next year from the government, according to Shi Yan, a Shanghai-based analyst at UOB-Kay Hian Ltd.

Futures on the Hang Seng Index fell 1 percent to 18,258.

--With assistance from Yang Jing in Shanghai and Yoshiaki Nohara in Tokyo. Editor: Jim Powell.

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

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


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