Hong Kong Stocks Drop as Europe a Catalyst for Selling

By Nick Gentle & Jonathan Burgos

Hong Kong stocks plunged, poised for the lowest close in almost four months, as HSBC Holdings Plc (HSBA) led declines among financial shares after Cyprus agreed to an unprecedented tax on bank deposits to fund a bailout.

The Hang Seng Index dropped 2.3 percent to 22,016.82 as of 1:14 p.m. in Hong Kong, headed for its lowest close since Dec. 4. Just four companies gained among the measure’s 50 members. HSBC, Europe’s biggest lender, slid 2.6 percent, poised for its biggest decrease in a month. Li & Fung Ltd. (494), a supplier to retailers that gets 21 percent of sales from Europe, declined 3.4 percent.

Trading volume on the Hang Seng Index was 62 percent above the 30-day intraday average, according to data compiled by Bloomberg. The Hang Seng China Enterprises Index (HSCEI) of mainland companies dropped 2.7 percent, extending its decline from a Feb. 1 high to 12 percent as China’s home prices posted the broadest advance since December 2011.

“The inevitable bailout of Cyprus has come and that’s setting a precedent that isn’t great,” saidAngus Gluskie, managing director at Sydney-based White Funds Management, which oversees more than $350 million. “Its financial impact is negligible but markets are reacting negatively because people have been looking for a reason to sell. The Chinese situation is a much more pertinent issue.”

Housing Curbs

The Hang Seng Index retreated 2.4 percent last week after inflation rose at the fastest pace in 10 months and People’s Bank of China Governor Zhou Xiaochuan said monetary policy is “no longer relaxed.” The city’s mortgage rates rose on reports some of China’s biggest cities are doing more to curb property- price increases. The Hang Seng Property Index (HSP) fell 5.9 percent in the four days through March 15.

The Hang Seng Index (HSI), the worst performing developed-market benchmark gauge this year, retreated 5.4 percent through March 15 from a 21-month high on Jan. 30. The benchmark equity measure traded for 10.9 times estimated earnings last week, compared with 14.1 for the Standard & Poor’s 500 Index and 12.8 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Cypriot Bailout

Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) to help fund a bailout by taking a piece of every bank account in Cyprus. Anastasiades delayed a vote on the measure in parliament until today, a day later than planned, as he seeks more time to convince lawmakers to back him.

Companies that do business in Europe declined. HSBC slid 2.6 percent to HK$83.85. Esprit Holdings Ltd. (330), a Hong Kong-based clothier that counts Europe as its biggest market, dropped 2 percent to HK$9.11. Li & Fung decreased 3.4 percent to HK$10.30.

China’s property developers extended losses as data showing rising new home prices fanned speculation the government will impose more property curbs.

“Fast-rising home prices have put the government under a lot of pressure,” said Ding Shuang, a senior China economist with Citigroup Inc. in Hong Kong. “We are expecting more property policies in the next couple of months.”

Developers Drop

Shimao Property Holdings Ltd. (813), controlled by billionaire Hui Wing Mao, sank 4.6 percent to HK$12.54. Guangzhou R&F Properties Co. lost 4.1 percent to HK$11.12. Agile Property Holdings Ltd. dropped 4.3 percent to HK$8.63.

China Overseas Land & Investment Ltd., the biggest Chinese developer by market value listed in Hong Kong, slipped 2.3 percent to HK$21.05, paring losses of as much as 4.2 percent. The company said during the midday break that 2012 profit climbed 21 percent on gains from property revaluations and the sales of stakes in some projects.

Midland Holdings Ltd., Hong Kong’s biggest realtor, plunged 4.6 percent to HK$3.36, after saying the city’s property brokers may cut as much as a third of their branches and agents if government curbs on home prices continue.

China Outlook

Sun Hung Kai Properties Ltd. (16), Hong Kong’s biggest real estate company by market value, fell 1.5 percent to HK$104.60. New World Development Co., the Hong Kong builder controlled by billionaire Cheng Yu-tung, slipped 4.1 percent to HK$12.72. Sino Land Co. dropped 4.1 percent to HK$12.64.

JPMorgan Chase & Co. reduced its recommendation on China’s shares to underweight from neutral. The nation’s policy environment is challenging amid slow growth and concern about inflation, Adrian Mowat, the investment bank’s Asia and emerging-market strategist, wrote in a report dated today.

Futures on the S&P 500 (SPX) plunged 1.5 percent. The U.S. equity gauge last week rose to within two points of its record high as government data showed jobless claims unexpectedly dropped to the lowest level in almost two months.

China Resources

China Resources Enterprise Ltd. (291), the government-backed partner of brewer SABMiller Plc, declined 3.9 percent to HK$23.70. The company is expected to report on March 21 a full- year adjusted net income of HK$1.88 billion ($242 million), according to the average estimate of 14 analysts tracked by Bloomberg. That compares with HK$2.83 billion in 2011.

Hang Seng Index futures slid 1.7 percent to 21,956. The HSI Volatility Index (VHSI) jumped 13 percent to 17.22, the most in almost a month and indicating traders expect a swing of 4.9 percent for the equity benchmark in the next 30 days.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

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