Bloomberg News

Hong Kong Stocks Decline on Spain’s Unemployment, Rating Cut

April 27, 2012

Hong Kong stocks fell, with the benchmark index capping its first weekly decline in four weeks, after Spain’s unemployment rose to an 18-year high and Standard & Poor’s cut the nation’s sovereign credit rating, fueling concern about the region’s debt crisis.

Esprit Holdings Ltd. (330), a clothier that depends on Europe for most of its sales, slid 0.9 percent. Foxconn International Holdings Ltd. (2038) plunged 16 percent in its steepest drop since October 2008 after the mobile-phone maker said its loss may widen “significantly.” PetroChina Co., China’s biggest energy producer, advanced 3 percent after beating profit estimates.

The Hang Seng Index (HSI) fell 0.3 percent to 20,741.45 at the close, after rising as much as 0.6 percent. More than twice as many stocks fell as rose, with volume 4.9 percent above the 30- day intraday average. The gauge dropped 1.3 percent on the week. The Hang Seng China Enterprises Index (HSCEI) of mainland stocks dropped 0.1 percent to 10,905.10.

“ Spain is too big for the euro to bail it out,” said Francis Lun, managing director at Lyncean Holdings Ltd. “The key is its high unemployment. It doesn’t look like it can really save itself by cutting expenses because when people are so poor how much can you cut?”

Hong Kong’s benchmark index has fallen about 4.3 percent since this year’s peak on Feb. 29 as China’s economy slowed for a fifth quarter. Shares on the index traded at 10.5 times estimated earnings on average as of yesterday, down from 11 times when the gauge peaked in February. Stocks on the S&P 500 Index trade at 13.3 times estimated earnings, while the average on the Stoxx Europe 600 Index is 10.8.

Spain Unemployment Rises

Shares reversed earlier gains as Spanish data today showed unemployment rose in the euro area’s fourth-largest economy Rose to 24.4 percent, the highest in 18 years. Separately, Spain’s credit rating was cut by Standard & Poor’s yesterday on concern the nation will have to provide further support to the banking sector. Spain’s borrowing costs have climbed as Prime Minister Mariano Rajoy struggles to implement austerity measures amid a shrinking economy.

Esprit dropped 0.9 percent to HK$15.98, while Cosco Pacific Ltd., which operates a port in Greece, retreated 1.6 percent to HK$11.02.

Foxconn International plunged 16 percent to HK$3.78 after saying its first-half loss may widen on lower demand and higher costs. Zijin Mining Group Co. (2899), China’s biggest gold miner by market value, slumped 9.3 percent to HK$2.63 after saying first- quarter profit declined 23 percent on higher costs.

Of the 44 companies in the Hang Seng Composite Index that released quarterly earnings this month, 25 companies reported falling profit, while 11 said net income grew.

PetroChina Beats Estimates

PetroChina led earlier gains as it increased 3 percent to HK$11.64 after saying net income for the first quarter rose 5.8 percent from a year earlier to 39.2 billion yuan ($6.2 billion), beating the 34.8 billion yuan mean estimate in a Bloomberg survey.

Hang Seng Index futures expiring this month fell 0.1 percent to 20,845. The HSI Volatility Index (VHSI) increased 2.7 percent to 19.13, indicating traders expect a swing of about 5.5 percent in the benchmark index during the next 30 days.

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

To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.net


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