Hong Kong Stocks Fall on Report Mainland's Banks Told to Raise Provisions

Hong Kong stocks fell as banks declined after people familiar with the situation said China ordered bad loan provisions be increased, overshadowing optimism the nation has room to relax policies designed to rein in property prices and slow economic growth.

China Construction Bank Corp. sank 2.7 percent, leading declines among Chinese lenders. Hang Lung Properties Ltd., a developer that got 40 percent of its fiscal 2009 revenue from China, gained 1.4 percent. Hutchison Whampoa Ltd., which holds assets from ports to telecommunications and power producers, jumped 6 percent after Managing Director Canning Fok bought more shares in the company.

“Investors fear that the Chinese government may continue its tightening policies after the inflation rate accelerated,” Kenny Tang, an executive director at Hong Kong-based Redford Asset Management Ltd., said in a phone interview today. “The market lacks direction in the short-term.”

The Hang Seng Index dropped 0.8 percent to 21,294.54 as of the close of trading, after rising as much as 0.8 percent. Declines among banks accounted for most of the index’s retreat.

The Hang Seng China Enterprises Index of so-called H shares of Chinese companies slid 1.7 percent to 11,737.63.

The Hang Seng Index has fallen 5 percent from its highest close this year on Jan. 6 as China’s efforts to cool its property market and Europe’s debt crisis dented confidence in a global economic recovery. Stocks on the gauge trade at an average 13.9 times estimated earnings, Bloomberg data show, down from 17.2 times at the beginning of the year.

China Construction Bank, China’s second-biggest lender, fell 2.7 percent to HK$6.54. Bank of Communications Co., the nation’s No. 5, slid 1.8 percent to HK$8.58. Bank of China Ltd., the third biggest, fell 2.2 percent to HK$4.07.

Increased Loan Provisions

China’s banking regulator ordered lenders to transfer off- balance-sheet loans on to their books and make provisions for those that may default, three people with knowledge of the situation said. Lenders should prepare provisions equal to 150 percent of potential losses, the people said, declining to be identified as the matter isn’t public.

Industrial & Commercial Bank of China (Asia) Ltd. surged 25 percent to HK$28.75, the sharpest jump on the Hang Seng Composite Index and its biggest gain on record. Industrial & Commercial Bank of China Ltd., the country’s largest lender, offered HK$10.83 billion to take its Hong Kong unit private. ICBC bid HK$29.45 per share for the stock it doesn’t already own in ICBC (Asia), the Beijing-based company said. ICBC lost 2.5 percent to HK$5.75.

“The central government is very concerned about bad loans,” said Steve Tse, a research manager at BEA Union Investment Management. “Given that they are so nervous about it, we’d think it actually reduces the chance for the situation to worsen.”

China Developers Rise

Cnooc Ltd., China’s biggest offshore energy explorer, dropped 1.2 percent to HK$13.06. PetroChina Co., the country’s biggest oil producer, fell 1 percent to HK$8.77.

Crude oil futures slid 0.9 percent to $79.50 in after-hours electronic trading in New York as of 4:30 p.m. Hong Kong time. The contract declined 1.5 percent yesterday.

Hang Lung climbed 1.4 percent to HK$33.90. China Overseas Land & Investment Ltd., controlled by the nation’s construction ministry, fell 1.3 percent to HK$16.30, after climbing as much as 1.6 percent. The company said its property sales jumped 21 percent in July from a year earlier to HK$5 billion ($644 million).

Industrial production rose 13.4 percent last month from a year earlier, the statistics bureau said. Inflation quickened to 3.3 percent, the fastest pace in 21 months, boosted by a low year-earlier base for comparison and rising food costs.

Hutchison Whampoa

Hutchison Whampoa, billionaire Li Ka-shing’s biggest company with operations in 54 countries, jumped 6 percent to HK$61.85, the sharpest gain on the Hang Seng Index and the stock’s highest price since September 2008. Fok increased his stake in the company, raising his holding in the company to 0.14 percent, according to a filing to the exchange yesterday.

“Hutchison’s 3G mobile-phone unit is turning profitable and Fok’s action is a vote of confidence on the outlook of the company,” Redford Asset’s Tang said.

Futures on the Hang Seng Index fell 0.7 percent to 21,309. Thirty-one stocks dropped while nine rose among the 43 companies on the gauge.

To contact the reporters on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net; Marco Lui in Hong Kong at mlui11@bloomberg.net

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