Hang Seng Index Declines Second Day, Reversing Gains as Developers Retreat

Hong Kong stocks fell for a second day, reversing gains as developers dropped on concern measures to rein in property prices are slowing the real estate market and China-based banks retreated.

Henderson Land Development Co., the Hong Kong builder controlled by billionaire Lee Shau-kee, fell 1.1 percent after its executive director said government measures to control property prices have affected the market. China Construction Bank Corp., the nation’s No. 2 lender by market value, dropped 1.8 percent on speculation China will introduce further tightening measures. Cnooc Ltd., China’s biggest offshore oil producer, jumped 2.4 percent after commodity prices increased.

The Hang Seng Index dropped 0.4 percent to 23,237.69 at the close after gaining as much as 1.3 percent. The Hang Seng China Enterprises Index of so-called H shares of Chinese companies slid 1 percent to 12,804.77.

“People are still very cautious on Hong Kong’s local property market,” Steven Leung, director of institutional sales at UOB-Kay Hian Ltd. “For China, speculation and worries remain about another potential interest rate hike, and equity market won’t perform well until we see the final decision from the government.”

Henderson Land sank 1.1 percent to HK$53.85 after Executive Director Augustine Wong said at a forum government measures to rein in property prices and curb speculation in Hong Kong have had some impact on property prices. Sino Land Co., a developer controlled by billionaire Robert Ng, sank 1.8 percent to HK$16.08. Sun Hung Kai Properties Ltd., the world’s biggest developer, declined 1 percent to HK$129.50.

Midland holdings

Residential transactions may fall by as much as 35 percent in 2011 from 2010, Midland Holdings Ltd., the city’s biggest realtor by market value, said last week. The government on Nov. 19 increased minimum down payments on homes costing more than HK$8 million ($1 million) and imposed additional stamp duties on all units bought after Nov. 20 and resold within two years as home values soared more than 50 percent since January 2009.

A measure of property stocks had the biggest drop among the Hang Seng Index’s four industry groups, followed by banks.

Chinese banks dropped on concern the government will take more steps to curb inflation. China Construction Bank slipped 1.8 percent to HK$6.97, while Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, fell 1.3 percent to HK$5.90. The four biggest drags on the Hang Seng Index were Chinese banks.

Inflation ‘Stabilizing’

Inflation in China is likely to stabilize next year as tepid demand abroad damps economic growth at home, allowing the nation’s central bank to gradually withdraw monetary stimulus, said UBS AG chief Asian economist Duncan Wooldridge in an interview today.

Separately, the People’s Bank of China may raise rates at a “gradual and slow” pace next year and order higher reserve requirements for banks to counter capital inflows, Li Daokui, an adviser to the central bank, said in an interview on Dec. 3.

“Hong Kong has to monitor the monetary policy direction in China much more so than some of the other Asian markets,” said Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees about $12 billion.

The Hang Seng Index has increased 6.2 percent this year, 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 14.6 times estimated earnings, compared with about 17.2 times at the start of the year.

Crude Oil

Commodity producers led gains before being overshadowed by banks and developers. Cnooc increased 2.4 percent to HK$18.16 and was the biggest positive contributor to the Hang Seng Index. Jiangxi Copper Co., China’s No. 1 producer of the metal, jumped 2.3 percent to HK$24.65.

Crude oil for January delivery advanced 1.4 percent in New York on Dec. 3 to $89.19 a barrel, the highest settlement since Oct. 7, 2008, as the dollar tumbled and boosted the appeal of commodities as an alternative investment. Copper rose 0.5 percent on Dec. 3, while gold futures advanced 1.2 percent.

Thirty-two stocks fell while 13 rose on the 45-member Hang Seng Index. Futures on the gauge lost 0.4 percent to 23,173.

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.

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