Hong Kong Stock Index Closes Below 20,000; Lowest Since July

Hong Kong stocks fell, with the benchmark index having its first close below 20,000 in more than three weeks, after Maanshan Iron & Steel (600808) Co. reported a half- year loss and HSBC Holdings Plc (HSBA) began trading without the right to its dividend.

Maanshan Iron retreated 5.8 percent. HSBC (5), Europe’s largest bank, slipped 1.6 percent. Shares also declined after China stocks fell into a so-called bear market on concern the nation’s economic recovery will falter as the government reins in lending.

“Without doubt we are on our way toward an economic recovery and the worst is behind us, but the uncertainty lies with the pace of the recovery,” said Kenny Tang, an executive director at Hong Kong-based Redford Securities Co. “The market is waiting for catalysts to pick up again after this consolidation, which I believe will be short lived.”

The Hang Seng Index slid 1.7 percent to 19,954.23, the first time it closed below 20,000 since July 24. The benchmark index has soared 76 percent from a four-month low on March 9, amid speculation stimulus efforts worldwide, including 4 trillion yuan ($585 billion) of spending in China, will revive global growth.

The Hang Seng China Enterprises Index (HSCEI), which tracks so- called H shares of Chinese companies, declined 1.6 percent to 11,260.83.

Maanshan Loss

China’s Shanghai Composite Index (SHCOMP) fell briefly into a so- called bear market after notching losses of more than 20 percent from this year’s high. It closed 4.3 percent lower at 2,785.58, on concern government action to slow lending will stifle a recovery.

Maanshan Iron retreated 5.8 percent to HK$5.05. The steelmaker posted a half-year loss for the second consecutive period as the global recession crimped demand from builders and automakers. First-half net loss was 795.4 million yuan, compared with a profit of 2.24 billion yuan the same period last year, the company said yesterday.

HSBC, Europe’s largest bank, slipped 1.6 percent to HK$81.55. The stock started trading today without the right to receive its 8 cent dividend declared July 28. Investors had to own the stock before today to receive the payout. The stock may retreat an amount equivalent to the value of the dividend.

Shares also dropped after billionaire Warren Buffett warned that the “monetary medicine” being pumped into the financial system poses threats to the U.S. economy.

‘Ominous Threat’

Li & Fung Ltd. (494), the biggest supplier of clothes and toys to Wal-Mart Stores Inc., plunged 6.2 percent to HK$26.70, the sharpest drop on the Hang Seng Index. Foxconn International Holdings Ltd., the world’s biggest contract maker of mobile- phones, fell 2.4 percent to HK$4.87.

The “gusher of federal money” has rescued the financial system and the U.S. economy is now on a slow path to recovery, Buffett wrote in a New York Times commentary yesterday.

“Before long, we will need to deal with their side effects,” Buffett said. “Their threat may be as ominous as that posed by the financial crisis itself.”

SCMP Group Ltd. (583), publisher of Hong Kong’s South China Morning Post newspaper, fell 3.1 percent to HK$1.26 after saying it expects to post a first-half loss, compared with a profit a year earlier.

Guangshen Railway Co. (525), the operator of trains in Guangdong, China’s richest province, dropped 3.2 percent to HK$3.60. Goldman Sachs cut the rating on its Hong Kong-traded stock to “neutral” from “buy” because the shares are “fairly valued,” and the company faced potential threats in the form of new commuter services and a shift to air travel.

Fuel Prices

Cathay Pacific Airways Ltd., the city’s biggest carrier, dropped 3.6 percent to HK$11.36. China Eastern Airlines Corp., the nation’s No. 3 carrier, declined 2.9 percent to HK$2.32. Air China Ltd. (753), the world’s biggest carrier by market value, slid 3.4 percent to HK$4.33.

Crude oil futures rose 3.7 percent to $69.19 a barrel in New York yesterday. The contract was recently at $68.68 in after-hours trading.

The price of jet fuel, a product of crude oil, climbed 1.1 percent yesterday, bringing its gains this year to 42 percent.

Sinotrans Shipping Ltd. (368), the dry-bulk arm of China’s third- largest shipping group, declined 2.8 percent to HK$3.78 after UBS AG cut its recommendation on the stock to “sell” from “buy,” saying the stock is “fully valued.”

Hutchison Telecommunications Hong Kong Holdings Ltd. (215), a provider of mobile and fixed-line phone services, jumped 5.5 percent to HK$1.15 after Goldman Sachs Group Inc. raised its share-price forecast for the stock by 7.7 percent to HK$1.40.

BNP Paribas SA noted in a report today the dichotomy between segments of Hong Kong’s market that are “benefiting from the warm glow of excess liquidity from China” and those suffering through reliance on the broader world economy. The bank lifted its 12-month forecast for the Hang Seng Index (HSI) to 27,000 from 20,500 on a sooner-than-expected recovery in the U.S.

All but two stocks on the 42-member Hang Seng Index declined. August futures fell 1.1 percent to 19,999.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net

To contact the editor responsible for this story: Darren Boey in Hong Kong at dboey@bloomberg.net.

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