Bloomberg News

Hong Kong Stocks Decline on Fiscal Cliff, Growth Concern

November 28, 2012

Hong Kong stocks fell, with the benchmark index dropping the most in two weeks, as the Organization for Economic Cooperation & Development said failure to avert the so-called fiscal cliff in the U.S. would increase the risk of global recession.

Techtronic Industries Co. (669), a maker of power tools that counts North America as its biggest market, slid 1.3 percent. Cnooc Ltd. (883), China’s largest offshore energy explorer, dropped 1.7 percent after oil prices declined for a second day yesterday. Guangzhou R&F Properties Ltd., a developer in the southern Chinese city, rose 6 percent after Deutsche Bank AG said the stock was among its top picks.

The Hang Seng Index (HSI) dropped 0.6 percent to 21,708.98 at the close, its biggest drop since Nov. 15. The shares slid a third day, the longest losing streak since Oct. 30. More than four stocks declined for each that rose on the measure, with volume about 12 percent below the 30-day intraday average. The Hang Seng China Enterprises Index of mainland companies sank 1.2 percent to 10,399.16.

“The U.S. fiscal cliff is still in discussions, creating some uncertainties for the market, and the situation of the European debt crisis is still very volatile,” said Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd. “For China, growth is quite healthy, even though there will be some reduction of consumption in Europe.”

The city’s benchmark index advanced 19 percent from this year’s low on June 4 as reports from the U.S. and China signaled the world’s two largest economies are recovering, and as central banks around the globe took action to spur growth. Shares on the measure traded at 11.4 times average estimated earnings, compared with 13.5 for the Standard & Poor’s 500 Index and 12.4 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Fiscal Cliff

Futures on the S&P 500 Index slid 0.1 percent today. The gauge sank 0.5 percent yesterday, a second day of declines, as concern about progress in Washington budget negotiations outweighed a European agreement on aid to indebted Greece and better-than-forecast U.S. durable goods data.

Senate Majority Leader Harry Reid said yesterday Democrats and Republicans have made little headway in negotiations over how to avoid the fiscal cliff, $607 billion in tax increases and spending reductions set to begin in January. Reid said that following a Nov. 16 White House meeting, Republicans backed away from earlier openness to considering new tax revenue as part of a year-end deal.

Techtronic dropped 1.3 percent to HK$15.56. Semiconductor Manufacturing International Corp., a chip-services provider that gets more than half its revenue from North America, declined 2.6 percent to 37 Hong Kong cents.

Growth Forecast

The OECD cut its growth forecast for the U.S. and euro area, warned that the fiscal cliff added to risks of a “major” global recession, and urged the European Central Bank and the People’s Bank of China to ease monetary policy.

“After five years of crisis, the global economy is weakening again,” OECD Chief Economist Pier Carlo Padoan said yesterday in the Paris-based organization’s semi-annual economic outlook. “The risk of a major contraction cannot be ruled out.”

Cnooc dropped 1.7 percent to HK$16.14 and PetroChina Co. retreated 1 percent to HK$10.18 after crude oil for January delivery fell 0.6 percent to $87.18 a barrel in New York yesterday, its second day of declines. Oil traded near the lowest price in a week today.

Wind Farm

Guangzhou R&F rose 6 percent to HK$11.64 after Deutsche Bank said investors should rotate from Hong Kong property companies to Chinese developers as mainland supply falls next years.

China Longyuan Power Group Corp. (916) gained 7.5 percent to HK$5.19 after saying it started operating China’s largest sea- based wind farm off the eastern province of Jiangsu.

Futures on the Hang Seng Index fell 0.5 percent to 21,704. The HSI Volatility Index (VHSI) gained 3 percent to 16.09. The level indicates traders expect a swing of 4.6 percent for the equity benchmark in 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: Nick Gentle at ngentle2@bloomberg.net


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