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Hong Kong's Stocks Decline as China Enterprises Index Enters `Bear' Market

Hong Kong stocks fell, dragging the Hang Seng China Enterprises Index into a so-called bear market, on concern China’s efforts to cool property prices and the fallout from Europe’s debt crisis will hurt earnings.

Hang Lung Properties Ltd., which got 40 percent of its 2009 revenue from China, retreated 5.2 percent. Cosco Pacific Ltd., which took over some operations in Greece’s Piraeus port last year, plunged 6.2 percent. Prudential Plc, a U.K. insurer, slid 4.2 percent on its first day of trading in Hong Kong.

“We’ve been shorting property companies since last November, though we have done some short-covering last week,” Andy Mantel, founder and managing director of Pacific Sun Investment Management Ltd., said in a Bloomberg Television interview. “I’m not actively going long in this area.”

The Hang Seng Index fell 3.5 percent to 18,985.50, its lowest close since July 17. The Hang Seng China Enterprises Index of so-called H-shares sank 4.6 percent to 10,729.05, extending its decline to 22 percent from its 52-week high on Nov. 16. A fall of 20 percent from the latest high marks a bear market, according to some analysts.

Shares on the benchmark Hang Seng Index are priced at an average 12.5 times estimated earnings, down from 18 times on Nov. 16, according to Bloomberg data. Concern over budget deficits in Europe and speculation China’s government will further tighten money supply have contributed to a 17 percent drop in the Hang Seng from its November high.

Hang Lung plunged 5.2 percent to HK$27.30. China Resources Land Ltd., a state-controlled developer, slid 4.5 percent to HK$14.30. China Overseas Land & Investment Ltd., controlled by the nation’s construction ministry, declined 4 percent to HK$15.

Shanghai Property Tax

Shanghai will introduce a property tax policy on a trial basis next month, the Economic Observer reported, citing an unidentified person. The report didn’t identify the nature of the tax, and said more detailed policies may be announced at a later date. The 21st Century Business Herald reported May 14 the prospect of expanding a tax on commercial-use properties to residences.

Cosco Pacific tumbled 6.2 percent to HK$8.68. Esprit Holdings Ltd., which received 85 percent of its 2009 revenue from Europe, lost 5.5 percent to HK$41.90. Foxconn International Holdings Ltd., the world’s biggest contract maker of mobile- phones, slumped 9.7 percent to HK$5.31.

Four Spanish savings banks said yesterday they submitted a proposal to the nation’s central bank to merge their businesses. The Bank of Spain is stepping up efforts to buttress or combine the weakest of Spain’s “cajas,” mutually owned banks that boosted lending more than fivefold during Spain’s economic boom and account for about half the country’s loans.

Asian Insurance

Prudential, which is seeking finance for its acquisition of the main Asian life insurance unit of American International Group Inc., closed at HK$57.20, after moving 2 percent of its London-traded shares to the Chinese city’s exchange. That’s 4.2 percent lower than the stock’s closing price of an equivalent of HK$59.69 in London yesterday.

Xinao Gas Holdings Ltd., an energy supplier, slumped 9.3 percent to HK$20.10. The company plans to diversify into other energy sources and the strategy won’t lead to increased risks, Financial Controller Wilson Cheng said.

Dynasty Fine Wines Group, a wine producer and seller, tumbled 5.6 percent to HK$2.70. The company is looking to expand wine-production capacity in China, where it estimates demand for the beverage will grow 10 percent a year, Chairman Bai Zhisheng said.

All but one stock fell on the 43-member Hang Seng Index. Futures on the gauge declined 3.2 percent to 18,922.

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

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