Bloomberg News

Hong Kong Stocks Drop as China Earnings Raise Concern

March 30, 2012

Hong Kong stocks dropped, sending the Hang Seng Index down for a third day, as the billionaire co- chairmen of Sun Hung Kai Properties Ltd., the city’s biggest developer, were arrested as part of a corruption probe.

Sun Hung Kai plunged 13 percent, its biggest drop since 1998. Li Ning Co. (2331), China’s largest maker of sportswear, sank 4.4 percent after profit fell 65 percent. Industrial & Commercial Bank of China Ltd. gained 1.6 percent after the world’s most profitable lender posted better-than-estimated earnings.

The Hang Seng Index fell 0.3 percent to 20,555.58 at the 4 p.m. close in Hong Kong. The gauge dropped 5.2 percent this month, its first such decline since November, paring gains this year to 12 percent. The index slid 0.6 percent this week.

“The arrests will have a negative short-term impact on sentiment,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Investment Trust, which oversees the equivalent of $72.1 billion in assets.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in the city added 1 percent to 10,640.16 today. Shares rose on better-than-estimated earnings from banks and speculation the government will cut excess production capacity to support companies.

Futures on the Standard & Poor’s 500 Index (SPXL1) rose 0.2 percent today after the index lost 0.2 percent in New York yesterday. A report today is expected to show consumer confidence in the world’s biggest economy gained in March.

‘Sustainability’?

“You just don’t have sustainability for the markets to reweight higher like they did three or four months ago,”Andrew Pease, Sydney-based chief investment strategist for the Asia- Pacific region at Russell Investment Group, which manages about $150 billion. “You are not going to see any acceleration from here and you may actually feel a bit of moderation” in the U.S.

Sun Hung Kai Properties (16), the most-actively traded stock in Hong Kong today by value, led real estate companies lower, tumbling 13 percent to HK$96.50. Shares fell after Thomas and Raymond Kwok, the company’s co-chairmen, were detained yesterday by the Independent Commission Against Corruption. The brothers will continue running the developer, and the arrests won’t affect business operations, Sun Hung Kai said in a statement.

Li Ning, a sports apparel company founded by the former Olympics gymnastic gold medalist of the same name, sank 4.4 percent to HK$8.26 after profit fell to 386 million yuan ($61 million) last year. Analysts expected earnings of 438 million yuan.

H-Shares Rise

A gauge of Chinese companies listed in Hong Kong, the so- called H-shares index, rose today for the first time in three days. The index declining 11 times in the 12 trading days through yesterday amid concern China’s economic growth is slowing.

Industrial & Commercial Bank of China advanced 1.6 percent to HK$5.01 today after posting a 17 percent increase in fourth- quarter earnings as loan growth outpaced rising defaults. Smaller Bank of China climbed 1.6 percent to HK$3.13 after saying earnings increased 11 percent to 27.9 billion yuan.

The Hang Seng Index (HSI) had its biggest quarterly gain since the period through September 2009 amid signs of strength in the U.S. recovery and as China lowered lending curbs. Shares in the Hang Seng Index traded at 10.3 times estimated earnings yesterday, compared with 13.5 times for the S&P 500 and 11 times for the Stoxx Europe 600 Index.

Futures on the Hang Seng Index expiring this month slid 0.2 percent to 20,500. The HSI Volatility Index (VHSI) rose 0.3 percent to 20.24, indicating options traders expect a swing of 5.8 percent in the benchmark index over the next 30 days.

To contact the reporter on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

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


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