Bloomberg News

Most Hong Kong Stocks Fall as China Housing Tempers Fed Optimism

July 18, 2013

Most Hong Kong stocks fell as rising China home prices dimmed prospects for easing of property curbs, outweighing comments by Federal Reserve Chairman Ben S. Bernanke that the U.S. is not on a preset course to taper stimulus.

China Resources Land Ltd. (1109), which gets all of its revenue on the mainland, lost 3.3 percent to lead declines among developers. Man Wah Holdings Ltd., a sofa maker that gets more than half of its sales from the U.S., slid 7.5 percent after Macquarie Group Ltd. downgraded its shares. About three companies fell for every two that gained on the Hang Seng Composite Index.

The Hang Seng Index (HSI) fell 0.1 percent to 21,345.22 at the close in Hong Kong after rising as much as 0.3 percent. Trading volume was 40 percent below the 30-day average. The Hang Seng China Enterprises Index of mainland shares rose 0.1 percent to 9,492.07.

“The Chinese government has been targeting developers for at least three and a half years now, so they’re not operating in a friendly environment,” said Alex Wong, a Hong Kong-based director at Ample Capital Ltd. “You can not expect any easier environment for them in the near term.”

Shares on the benchmark Hang Seng Index traded at 10.16 times estimated earnings, compared with 15.2 for the Standard & Poor’s 500 Index and 13.3 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Property stocks retreated after China’s June new home prices rose in 69 of 70 cities the government tracked from a year earlier. China in March stepped up a three-year campaign to cool housing speculation, and has studied expanding property-tax trials after implementing them in Shanghai and Chongqing.

Developers Slide

China Resources Land, which gets all of its revenue on the mainland, lost 3.3 percent to HK$20.25. China Overseas Land & Investment Ltd. (668) fell 1.4 percent to HK$21.20.

The Fed’s Bernanke told Congress yesterday that stimulus is “by no means on a preset course” and could be reduced or expanded depending on economic conditions.

Central-bank policy makers have been debating the timing of cuts in $85 billion of monthly bond purchases. Bernanke has said any reduction will be tied to improvement in the labor market or a rise in inflation. The U.S. economy maintained a “modest to moderate pace” of growth in recent weeks, the Fed said in its Beige Book business survey.

“Bernanke’s testimony was in line with expectations and what he has been saying over the past week or two,” said Binay Chandgothia, a Hong Kong-based portfolio manager at Principal Global Investors, which oversees $250 billion globally. China “seems to be accepting a lower trajectory of growth and they don’t look like jumping in and taking short-term measures.”

Growth Risks

The International Monetary Fund yesterday said risks are increasing that China’s economic growth will fall short of the institution’s 7.75 percent annual forecast as it urged the nation to follow through on reforms to sustain expansion. Premier Li Keqiang said this month restructuring should proceed as long as growth and employment stay above unspecified limits.

The Hang Seng Index rebounded 2.7 percent through yesterday after posting its biggest monthly decline in a year in June, on speculation China may act to ease a deepening slowdown. The government this week reported 7.5 percent economic growth in the second quarter, down from 7.7 percent in the first three months, as factory output weakened.

Futures on the S&P 500 rose 0.1 percent today. The U.S. equity index gained 0.3 percent yesterday in New York after snapping an eight-day rally, as the Fed chief’s comments reassured markets and Bank of America Corp. and Yahoo! Inc. earnings beat estimates.

U.S. Housing

U.S. housing starts fell to the lowest in almost a year, contrasting a seven-year high in builders’ optimism, according to a report. Li & Fung fell 0.9 percent to HK$11.00. Techtronic Industries Co., a maker of power tools that gets 73 percent of its sales in North America, dropped 5 percent to HK$18.56.

China Resources Power Holdings Ltd. fell 1.8 percent to HK$17.66, extending losses after plunging the most in four years yesterday. The utility denied allegations by a Xinhua reporter that it overpaid when spending 7.9 billion yuan ($1.3 billion) for coal assets another party valued at half the price.

Man Wah slid 7.5% to HK$9.27, the biggest drop in three months. The sofa maker’s equity rating was cut to underperform from outperform at Macquarie. The shares as of today traded without right to a dividend for the most recent period.

Hang Seng Index futures were little changed at 21,362. The HSI Volatility Index slid 3.5 percent to 19.16, indicating traders expect a swing of 5.5 percent on the equity benchmark in the next 30 days.

To contact the reporter on this story: Alan Wong in Hong Kong at awong478@bloomberg.net

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


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