Hong Kong Stocks Fall as Real Estate Developers Decline; European Concerns

Hong Kong stocks fell as rising consumer inflation and housing prices in China stoked concern the country will act further to rein in its economy. The city’s developers pared losses after a government land sale.

Guangzhou R&F Properties Co., the biggest developer in the southern Chinese city, dropped 4.7 percent. Hang Lung Properties Ltd., the city’s fourth largest developer by market value, declined 2.9 percent. Cheung Kong (Holdings) Ltd., the real- estate company controlled by billionaire Li Ka-shing, slipped 1.6 percent. HSBC Holdings Plc, Europe’s largest bank, sank 1.9 percent on lingering concern over the long-term health of Europe.

The Hang Seng Index fell 1.4 percent to 20,146.51 as of the close of trading. The gauge jumped 2.5 percent yesterday after European policy makers put together an almost $1 trillion to emergency-loan fund. The index has fallen for six of the past seven days.

“Domestic concerns are more important in terms of the policy measures coming out in China to cool things down,” said Binay Chandgothia, who oversees about $2.2 billion as chief investment officer at Principal Global Investors (Hong Kong). For Europe, “the question is the credibility of the billions of dollars of government debt that resides with European banks.”

The Hang Seng China Enterprises Index, which tracks the so- called H shares of Hong Kong-listed Chinese companies, fell 1.8 percent to 11,509.22. It earlier rose as much as 0.3 percent.

Shares on the benchmark Hang Seng Index are priced at an average 13.3 times estimated earnings, down from 18 times on Nov. 16, when the index closed at its highest level for 2009, according to Bloomberg data.

China Prices Advance

China’s consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said in statements today. New lending of 774 billion yuan ($113 billion), announced by the central bank, was more than any of 24 economists forecast.

“Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “China is at risk of overheating, with spot fires breaking out in various parts of the economy.”

Guangzhou R&F Properties declined 4.7 percent to HK$9.48. China Shenhua Energy Co., a unit of the nation’s biggest coal producer, dropped 3.6 percent to HK$31.20. Citic Pacific Ltd., which received 74 percent of its revenue from China, slumped 4 percent to HK$14.98.

Crackdown on Speculation

Chinese policy makers should focus on preventing excessive gains in asset prices and liquidity as Europe’s rescue package makes another global slump less likely, central bank adviser Li Daokui said in an interview yesterday. The increase in property prices across 70 cities was the most since data began in 2005, defying a government crackdown on speculation that intensified last month.

“For most investors, the worry is ‘when does China stop tightening’,” said Chandgothia. “One perspective is that maybe they’ll stop tightening when home prices start to decline on a month-on-month basis. We’ve heard developers have started cutting prices, but it’s still early days.”

Hang Lung Properties, whose 2009 revenue was split between Hong Kong and mainland China, fell 2.9 percent to HK$27.10. Cheung Kong declined 1.6 percent to HK$91.85. Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, declined 1.8 percent to HK$103.40.

The Hang Seng Property Index, tracks the performance of seven developers in Hong Kong, declined 1.8 percent, paring its earlier decline of 3.1 percent. The index was the decliner of the four industry groups on the Hang Seng Index.

Land Auction

Hong Kong’s government land auction sold a site in the city’s Tung Chung area to closely-held Nan Fung Development Ltd. for HK$3.42 billion, almost a third less than surveyors’ estimates. The plot had been projected to generate HK$4.75 billion, according to the median estimate of three surveyors compiled by Bloomberg.

The government has issued new rules to increase transparency in property sales in a bid to allay concern that gains in Hong Kong home prices have made housing unaffordable. Finance Secretary John Tsang on April 21 said the government may raise sales taxes and accelerate land auctions.

Concern over budget deficits in Europe and speculation China’s government will tighten money supply have contributed to a 12 percent drop in the Hang Seng from its November high. The measure’s 14-day relative strength index fell to 30 on May 7, a level some investors use as a signal to buy.

HSBC, Cosco Pacific

HSBC Holdings slipped 1.9 percent to HK$76.25, the biggest drag on the Hang Seng Index, after the director of the International Monetary Fund’s European department said he doesn’t consider the rescue package a “long-term solution” to the region’s debt crisis. Cosco Pacific Ltd., which took over some operations in Greece’s Piraeus port last year, fell 3.5 percent to HK$9.59.

Among stocks that rose, Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, gained 2.6 percent to HK$15.60 after predicting “strong” financial results this year. Cathay Pacific expects improved earnings for the first half of 2010 and possibly for the second half, the company said.

Futures on the benchmark Hang Seng Index fell 1.3 percent to 19,943. Six stocks fell for each that advanced on the 43- company gauge.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

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