Hong Kong's Fall, Led by China Banks on Outlook for Further Tightening

Hong Kong stocks fell for the first time in three days, as China-based banks declined on concern the government will introduce further measures to contain inflation, and as coal producers extended their retreat.

Industrial & Commercial Bank of China Ltd., the nation’s No. 1 lender by market value, declined 1 percent, while China Construction Bank Corp., the No. 2, slid 1.5 percent, overshadowing earlier gains by exporters. China Shenhua Energy Co., the nation’s largest coal producer, and China Coal Energy Co., the No. 2, retreated at least 2.7 percent, extending yesterday’s declines after Xinhua News Agency reported China ordered a freeze in thermal-coal prices.

“Continued concern about China’s tightening measures will keep investors on the sideline,” said Ben Kwong, chief operating officer at KGI Asia Ltd. “The upside will be limited.”

The Hang Seng Index dropped 0.6 percent to 23,320.52 at the close, after gaining as much as 0.7 percent. It rose 1.9 percent for the week, the first weekly gain since the period ended Nov. 5. The Hang Seng China Enterprises Index of so-called H shares of Chinese companies retreated 1.2 percent to 12,937.10.

China-based banks and property developers declined after the International Monetary Fund’s study recommended an increase in China’s interest rates and a property tax to curb the risk of asset bubbles.

ICBC dropped 1 percent to HK$5.98, while China Construction Bank slid 1.5 percent to HK$7.10, the biggest drag on the Hang Seng Index. Bank of China Ltd., the nation’s fourth-largest lender by market value, lost 1.2 percent to HK$4.23.

Banks, Developers Fall

China Overseas Land & Investment Ltd., controlled by the construction ministry, dropped 1.3 percent to HK$15.06, while China Resources Land Ltd., a state-controlled developer, slipped 1.3 percent to HK$14.12.

The stocks also extended declines in the afternoon after the state-run Xinhua News Agency said today China’s officials “will adopt proactive fiscal policies and prudent monetary policies.”

China Shenhua Energy retreated 3 percent to HK$30.65, while China Coal Energy slid 2.7 percent to HK$11.72, extending yesterday’s declines after the Xinhua News Agency reported on Dec. 1 the government ordered a freeze in 2011 contract prices for coal used in power stations.

Coal Tax

Separately, the Securities Times reported China will expand its resource tax reform to the whole nation in the next five years, citing Zhou Chuanhua, a department head at the Finance Ministry’s tax administration division. Coal and water will be covered in the resource tax as well, the report said.

The Hang Seng Index has surged 7.2 percent this year through yesterday, on expectations that growth in corporate earnings will overcome concerns about the pace of the U.S. economic recovery and China’s steps to curb rising property prices. Shares in the gauge trade at an average 14.7 times estimated earnings, compared with about 17.2 times at the start of the year.

While China-based banks and developers fell, some exporters gained as U.S. housing and retail sales and the European Central Bank’s extension of an emergency loan boosted confidence demand from the region will recover.

Techtronic Industries Co., the maker of Hoover vacuum cleaners and Ryobi power tools that made 76 percent of its revenue in North America last fiscal year, rose 5.8 percent to HK$9.11. Foxconn International Holdings Ltd., the world’s largest contract maker of electronics, advanced 0.6 percent to HK$5.52. Esprit Holdings Ltd., a global fashion retailer, rose 0.9 percent to HK$38.50.

U.S. Data, Europe

Pending sales of U.S. existing houses jumped by a record 10 percent in October, the National Association of Realtors said yesterday. That compares with a median estimate by 40 economists surveyed by Bloomberg for a 1 percent drop. Separate reports showed claims for jobless benefits over the past month on average dropped to a two-year low, and that November chain-store sales exceeded estimates.

European Central Bank policy makers meeting in Frankfurt yesterday delayed the bank’s exit from emergency liquidity measures as a sovereign-debt crisis threatens to engulf Portugal and Spain.

“Market sentiment is stabilizing because of positive signs from the U.S. economic data and subsiding fears about the European debt crisis,” said KGI Asia’s Kwong.

Almost three stocks fell for every one that rose on the 45- member Hang Seng Index. Futures on the gauge lost 0.5 percent to 23,270.

To contact the reporter on this story: Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.