Hong Kong’s Stock Index Falls to Three-Month Low on China Rate

Hong Kong stocks fell, dragging the benchmark index to a three-month low as developers slid after China raised interest rates for a second time since mid-October, and the city’s home sales declined. The city’s market was closed yesterday for a holiday.

China Overseas Land & Investment Ltd., controlled by the nation’s construction ministry, slid 2.3 percent. Sino Land Co., the worst performer in the past month on the Hang Seng Property Index, lost 3 percent. PetroChina Co., the nation’s largest oil and gas producer, slipped 1.6 percent after agreeing to sell its stake in a natural-gas pipeline operator to a Hong Kong-listed subsidiary for 18.9 billion yuan ($2.9 billion).

China’s rate increase “is prompting people to say the government is moving quickly because of the risk of inflation in China and that there may be more rises ahead,” said Andrew Sullivan, director of institutional sales at OSK Securities Hong Kong Ltd. “The worry is moving from a housing bubble causing inflation to wider inflation in the system. Much of that is actually food and fuel over which China has little control.”

The Hang Seng Index declined 0.9 percent to 22,621.73, its lowest close since Oct. 4. The Hang Seng China Enterprises Index of so-called H shares of Chinese companies dropped 1.1 percent to 12,309.59.

The Hang Seng Index has gained 3.4 percent this year, after rallying 52 percent in 2009, on speculation growth in corporate profits would counter China’s steps to curb property-price inflation, Europe’s debt crisis, and concern about the pace of the U.S. economic recovery.

China Resources Land

Shares in the gauge trade at an average 14.2 times estimated earnings, compared with 17.2 times at the beginning of this year.

China Overseas Land slid 2.3 percent to HK$14.18. China Resources Land Ltd., a state-controlled developer, fell 1.7 percent to HK$13.88.

China’s central bank said on Dec. 25 it would raise its benchmark one-year lending rate by 25 basis points to 5.81 percent, and the one-year deposit rate the same amount to 2.75 percent. Economists surveyed by Bloomberg News earlier this month forecast one percentage point of increases by the end of 2011.

The People’s Bank of China has ordered banks to set aside more reserves six times this year, including three times since November, after the nation reported inflation of 5.1 percent last month, the highest in 28 months, with food costs climbing 11.7 percent.

China Retailers Decline

Mainland retailers also declined on concern tightening policies will slow economic growth and consumption.

Gome Electrical Appliances Holdings Ltd., China’s second- biggest electronics retailer, dropped 5.2 percent to HK$2.72. Belle International Holdings Ltd., China’s largest retailer of women’s shoes, fell 3.8 percent to HK$12.78. China Resources Enterprise Ltd., the Chinese government-backed partner of SABMiller Plc, slid 3.3 percent to HK$30.60.

Sino Land lost 3 percent to HK$14.28. New World Development Co., controlled by billionaire Cheng Yu-tung, declined 2.7 percent to HK$14.18. Hang Lung Properties Ltd., Hong Kong’s No. 3 developer by market value, slid 2.5 percent to HK$35.45.

Sun Hung Kai Properties Ltd., the city’s biggest developer by market value, retreated 0.9 percent to HK$127.50. Cheung Kong (Holdings) Ltd., the No. 2, declined 1.4 percent to HK$118.30.

Home Sales Slide

The Hang Seng Property Index’s 1.6 percent drop was the biggest among the four industry groups tracked by the Hang Seng Index.

Hong Kong existing-home sales over the three-day holiday weekend fell 0.7 percent from the previous week on a daily average basis, Midland Holdings Ltd. said.

Any additional measures by Hong Kong’s government to cool house-price gains would run the risk of crimping demand among “real buyers” as well as speculators, said Mark McCombe, chief executive officer of HSBC Holdings Plc’s Hong Kong unit.

PetroChina slipped 1.6 percent to HK$9.77. Kunlun Energy Co. is in the course to finalize an agreement to acquire a 60 percent stake in PetroChina Beijing Natural Gas Pipeline Co., according to a statement. Kunlun Energy dropped 3.4 percent to HK$12. PetroChina owns 50.75 percent of the company, formerly known as CNPC Hong Kong Ltd.

Macau Investment

Macau Investment Holdings Ltd., which offers property and financial investment services, lost 5.4 percent to HK$2.80 after saying East Asia Sentinel Ltd. has resigned as the company’s auditor, effective Dec. 24, owing to a dispute over audit fees.

Zijin Mining Group Co., China’s biggest gold miner, slid 2.4 percent to HK$6.84. The Chinese province of Fujian fined Zijin officials a combined 1.16 million yuan for waste spills in July, according to a statement.

In a separate statement, Zijin said it agreed to sell the assets and mining rights at its Yinyan tin mine in the southern province of Guangdong to cover costs related to the deadly collapse of a dam at the site in September.

Chu Kong Petroleum & Natural Gas Steel Pipe Holdings Ltd., which produces steel pipes for the oil and gas industry, plunged 9.1 percent to HK$3.21 after saying it may record a “substantial” decrease in full-year profit.

China Construction Bank Corp. dropped 1.5 percent to HK$6.68. The company tied up with Taiwan’s China Life Insurance Co. to invest in Pacific Antai Life Insurance Co. China’s second-largest bank said it bought 1 percent of Shanghai-based Pacific Antai, boosting its stake to 51 percent.

All but four stocks fell among the 45 constituents of the Hang Seng Index. Its futures slid 0.7 percent to 22,634.

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

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

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