Bloomberg News

Hong Kong Stocks Fall as Europe Downgrade Stokes Crisis Concern

January 16, 2012

Jan. 16 (Bloomberg) -- Hong Kong stocks declined, with the Hang Seng Index falling by most in a week, as a downgrade of France’s top credit rating and those of eight other European nations stoked concern the region’s debt crisis may worsen.

Esprit Holdings Ltd., a clothier that counts Europe as its largest market, dropped 2.2 percent. Jiangxi Copper Co., China’s No. 1 producer of the metal, decreased 3 percent as copper futures fell. China Resources Land Ltd. led mainland property developers lower amid signs growth in the world’s second-largest economy is slowing. China Southern Airlines Co., Asia’s biggest carrier by passengers, tumbled 8.6 percent after Citigroup Inc. downgraded the stock.

“There’s still an overhang in Europe,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “Europe still has to deal with its debt burden. There’s still a lot of uncertainty globally.”

The Hang Seng Index fell 1 percent to 19,012.20 at the close, with about 10 shares falling for each that rose in the 48-member gauge. The index rose 3.3 percent last week amid bets Europe will manage its debt crisis and China will ease lending curbs. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 1.4 percent to 10,489.59.

Futures on the Standard & Poor’s 500 Index slid 0.4 percent today. The index lost 0.5 percent in New York on Jan. 13 as JPMorgan Chase & Co.’s profit slumped 23 percent. After the market closed, S&P said France was downgraded, while Germany had its credit rating affirmed.

S&P Downgrades

Companies dependent on Europe declined after S&P cut France’s rating to AA+ with a negative outlook. France will auction 8.7 billion euros ($11 billion) of notes today. Cyprus, Italy, Portugal and Spain were cut two grades, S&P said. The long-term ratings on Austria, Malta, Slovakia and Slovenia were cut one level.

Esprit slipped 2.2 percent to HK$11.42. Hutchison Whampoa Ltd., the operator of ports and telecommunications services that gets 53 percent of its revenue from Europe, declined 1.5 percent to HK$67.25. HSBC Holdings Plc, Europe’s biggest lender, lost 0.8 percent to HK$59.65.

The Hang Seng Index tumbled 20 percent last year amid concern Europe’s debt crisis was worsening and China’s steps to curb inflation would hamper economic growth. Companies in the gauge traded at 9.6 times forecast earnings at the last close, down from 14.4 times at the beginning of 2011, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index traded at 12.3 times.

Raw-material producers declined after copper futures in London fell. The Thomson Reuters/Jefferies CRB Index, which tracks 19 commodities ranging from copper to corn, declined for a third day on Jan. 13.

Chinese GDP

Jiangxi Copper dropped 3 percent to HK$17.52. Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, sank 3 percent to HK$3.57. Glencore International Plc, the world’s largest commodities trader, slid 0.9 percent to HK$47.60.

Chinese developers fell before the release of data tomorrow that’s expected to show the nation’s economy grew the least in 10 quarter in the last three months of 2011. Gross domestic product rose 8.7 percent from a year earlier, the slowest pace since the second quarter of 2009, according to the median forecast of 26 economists surveyed by Bloomberg News.

“Tomorrow will show not-so-good economic data with GDP slowing, and that may indicate first-quarter figures will get uglier,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million.

China Resources Land sank 2.9 percent to HK$12.92. Guangzhou R&F Properties Co., the biggest developer in the southern Chinese city, dropped 2.8 percent to HK$6.70. Agile Property Holdings Ltd., China’s third-largest homebuilder by sales, fell 2.8 percent to HK$7.70.

‘Earnings Headwind’

China Southern Airlines slumped 8.6 percent to HK$3.95 after Citigroup downgraded its rating to a “sell” from “buy.” Air China Ltd., the world’s biggest carrier by market value, declined 5.1 percent to HK$5.83 after Citigroup lowered its rating to “sell” from “neutral.”

“China airlines will face several earnings headwinds in 2012,” Citigroup analysts Vivian Tao and Alan Wang wrote in a note today. “The lower growth in the first half and the gradual shift of airline capacity back into the domestic market make it difficult for airlines to further improve yields.”

ASR Gains

Futures on the Hang Seng Index decreased 1.3 percent to 19,030. The HSI Volatility Index climbed 6.2 percent to 22.92 today, indicating options traders expect a swing of 6.6 percent in the benchmark over the next 30 days.

Among shares that advanced, ASR Holdings Ltd., a provider of air-freight services, surged 32 percent to HK$1.23 on its first trading day. The company sold 100 million shares at 93 Hong Kong cents each in its initial share sale last week.

BYD Co., the automaker partly-owned by Warren Buffett’s Berkshire Hathaway Inc., climbed 4.8 percent to HK$21.80, extending its advance for a sixth day. China will exempt 42 electric car models from vehicle taxes, the People’s Daily reported, citing a government statement. BYD was the worst performer last year on the Hang Seng China Enterprices Index, falling 59 percent.

Daphne International Holdings Ltd., a retailer of shoes in China, gained 5.2 percent to HK$8.47. The company said same- store sales climbed 26 percent from a year earlier in the fourth quarter.

--Editors: John McCluskey, 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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