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Hong Kong Stocks Fall as Commodities Drop on Inflation Concern

Hong Kong stocks fell, sending the Hang Seng Index (HSCI) to its lowest level in six weeks, as commodity prices dropped amid concern China will keep raising interest rates to curb inflation.

Cnooc Ltd. (883), China’s biggest offshore oil producer, and Jiangxi Copper Co. (358) retreated at least 1.4 percent. China Resources Land Ltd. (1109), a state-controlled developer, sank 3.5 percent on speculation rising interest rates will dampen housing demand. Tencent Holdings Ltd. (700), China’s No. 1 Internet company by revenue, gained 4.2 percent after saying its profit jumped 61 percent from a year earlier.

The Hang Seng Index fell 0.9 percent to 23,073.76 at the close of trading, its lowest level since March 29. All but six stocks fell in the 45-member gauge. The measure completed its longest stretch of losses since April 2003 in the eight days to May 6 as economic reports in the U.S. and falling commodity prices damped investor confidence in the global recovery.

“Investors are concerned whether rising inflation will curb China’s economic growth,” said Alex Au, Hong Kong-based managing director of Richland Capital Management Ltd., which oversees $300 million of assets. “Even though inflation may peak in the next few months, it remains a big issue. We won’t see a loosening of monetary conditions soon.”

Futures on the Hang Seng Index dropped 1.2 percent to 22,865. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies’ H shares declined 1.3 percent to 12,795.95.

China Tightening

China’s consumer prices rose 5.3 percent last month, exceeding the government’s full-year target of 4 percent and the 5.2 percent median forecast in a Bloomberg News survey of 30 economists. The inflation rate in March was 5.4 percent.

The nation’s inflation is spreading beyond food, signaling Premier Wen Jiabao’s strategy of quarter-point interest-rate increases every two months has yet to contain prices.

“It is not the time yet for policy makers to ease the tightening stance as inflation is still elevated and underlying pressure remains,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. “They may not have that kind of luxury until the third quarter.”

Cnooc decreased 1.4 percent to HK$18.36. Jiangxi Copper, China’s biggest producer of the metal, declined 2.2 percent to HK$24.10. Aluminum Corp. of China Ltd., the nation’s largest producer of the light metal, sank 2 percent to HK$6.89.

Oil, Metals

Crude oil for June delivery plunged 5.5 percent to settle at $98.21 a barrel yesterday in New York. The London Metal Exchange Index of six metals including copper and aluminum lost 1.9 percent yesterday, its first drop in four days. Copper fell to the lowest price in five months.

Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey found. A plurality -- 40 percent -- expects oil prices to fall in the next six months, the first time respondents felt that way since the inception of the poll in July 2009.

Developers in China declined on concern more increases in interest rates and reserve requirements for banks will further dampen demand for property. A government report yesterday showed the value of China’s home sales fell 21 percent in April from March after the government expanded measures to tackle potential asset bubbles.

Developers Retreat

China Resources Land slumped 3.5 percent to HK$13.20. Hang Lung Properties Ltd. (101), a Hong Kong-based developer that gets 16 percent of its sales from China, slipped 2.6 percent to HK$33.40. Agile Property Holdings Ltd. (3383), which builds villas and apartments in the southern Chinese city of Guangzhou, lost 1.6 percent to HK$12.10.

Kaisa Group Holdings Ltd. (1638), a Hong Kong-based developer of properties in China, tumbled 17 percent to HK$2.80, the worst performer on the Hang Seng Composite Index. Temasek Holdings Pte, Singapore’s state investment company, is selling 393.44 million shares in Kaisa for HK$3.02 each, according to a term sheet obtained by Bloomberg News. That’s an 11 percent discount to yesterday’s closing price, the terms show.

Among stocks that advanced, Tencent Holdings climbed 4.2 percent to HK$218.60. The company said first-quarter profit jumped 61 percent from a year earlier to 2.87 billion yuan ($442 million), beating analysts’ estimates, after new online games boosted sales.

The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, rose 3.5 percent to 17.74, indicating options traders expect a swing of 5.1 percent in the Hang Seng Index in the next 30 days.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; 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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