Bloomberg News

Hong Kong Stocks Fall as ECB Loan Surge Highlights Europe Risks

December 29, 2011

Dec. 29 (Bloomberg) -- Hong Kong stocks fell for a second day as the publication of record lending figures by the European Central Bank highlighted the magnitude of the debt crisis.

Esprit Holdings Ltd., a clothier that counts Europe as its biggest market, fell 1.8 percent. China Mengniu Dairy Co., which this week said excessive levels of a toxin were found in its milk, slid 7.4 percent after hackers broke into its website. China Overseas Land & Investment, a state-owned builder, dropped 4.9 percent after Chairman Kong Qingping sold shares.

The Hang Seng Index fell 0.7 percent to 18,397.92 at the close, with more than four stocks dropping for each that rose in the 48-member gauge retreated. The number of shares changing hands was about 40 percent of the 100-day average, according to data compiled by Bloomberg. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong fell 0.4 percent to 9,944.58.

“Some of Europe’s negative news has been factored in to share prices, but it will still take some time to improve market sentiment and rebuild investor confidence,” said Patrick Yiu, managing director at Cash Asset Management Ltd. “Turnover is not very active, and selling pressure is not that great.”

The Hang Seng Index has fallen 20 percent this year as banks and developers dropped on China’s measures to curb inflation and property prices. Companies in the index trade at 10 times forecast earnings, down from 14.4 times at the end of last year, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index trade at 12.6 times.

Esprit led 2011’s declines on the Hang Seng Index, falling 72 percent through yesterday on concern Europe’s failure to contain its debt crisis will further undermine the earnings outlook after management said the brand had “lost its soul.” The shares slid 1.8 percent today to HK$10.02.

ECB Loans

Futures on the S&P 500 rose 0.5 percent today. The index dropped 1.3 percent in New York yesterday after the ECB said its balance sheet ballooned to a record following last week’s loans to banks. The loans were meant to encourage banks to buy government bonds.

China Mengniu Dairy, the mainland’s biggest milk producer, dropped 7.4 percent to HK$18.52. Hackers posted a message on the company’s website saying “Mengniu once made the Chinese people strong and proud, but now it’s doing harm to its own people.” The stock has plunged 30 percent since regulators found excessive levels of a toxin in its milk.

China Overseas Land slid 4.9 percent to HK$13.12, the steepest drop in the Hang Seng Index, after Chairman Kong Qingping reduced his stake by 40 percent over three days.

Futures on the Hang Seng Index fell 0.4 percent to 18,365. The HSI Volatility Index climbed 1 percent to 24.97, indicating options traders expect a swing of 7.2 percent in the benchmark over the next 30 days.

--Editor: Jason Clenfield.

To contact the reporter on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net

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


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