Hong Kong Stocks Retreat as Moody’s Reviews U.S. Debt
(Corrects year of last Moody’s review of U.S. credit rating in eighth paragraph.)
Hong Kong stocks fell for a third day this week after Moody’s Investors Service put the U.S. under review for a credit-rating downgrade, hurting the outlook for earnings at companies tied to the global economic recovery.
Esprit Holdings Ltd. (330) sank 2.6 percent to the lowest level in almost eight years after CLSA Asia-Pacific Markets cut its rating on the stock, citing a disappointing earnings outlook as the European and North American retail industries slow. Foxconn International Holdings Ltd. (2038), a mobile phone maker that gets about a quarter of its revenue outside China, lost 2 percent. Zijin Mining Group Co., China’s No. 1 gold producer by market value, jumped 6.5 percent after metal prices gained.
“The Hong Kong market is in a downtrend, and it’s still finding its bottom,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “All the global economic uncertainties remain. Investors should stay on the sideline, wait for more news to come in and re-arrange their strategy.”
The Hang Seng Index (HSI) slid 0.2 percent to 21,882.10 as of 2:25 p.m. in Hong Kong. Almost twice as many stocks fell as rose in the 46-member gauge. The Hang Seng China Enterprises Index of Chinese companies’ H shares dropped 0.1 percent to 12,280.43.
The Hang Seng Index has dropped 4.8 percent this year through yesterday after Chinese policymakers raised interest rates and slowed bank lending to curb inflation. Shares in the gauge traded at 11.8 times forecast earnings at the last close, compared with about 14.4 times at the end of last year, according to data compiled by Bloomberg.
U.S. Review
Esprit, a clothing retailer that gets most of its revenue from Europe, sank 2.4 percent to HK$22.15 for the biggest drop in the Hang Seng Index. CLSA cut its rating on the stock to “underperform” from “buy.” Second-half earnings will be “very disappointing,” according to a note to clients from analysts Aaron Fischer and Mariana Kou.
Foxconn slid 2 percent to HK$3.43. Techtronic Industries Co. (669), maker of Ryobi power tools and Hoover vacuum cleaners, fell 2.3 percent to HK$8.16.
Moody’s Investors Service put the U.S., rated Aaa since 1917, under review for a credit-rating downgrade for the first time since 1996 on concern an agreement won’t be reached to boost the $14.3 trillion debt limit. The rating would likely be dropped to the Aa range, and there’s no assurance Moody’s would restore a top rating even if a default was quickly cured.
Federal Reserve Chairman Ben S. Bernanke yesterday told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.
Miners Rise
The launch of another so-called quantitative easing “means the U.S. economy is in big trouble and that’s not a good sign for Hong Kong,” said First Shanghai’s Yip. “ It’s good for gold prices. The overall market risk is still high, and it’s becoming a safe haven.”
Zijin Mining jumped 6.5 percent to HK$4.43, while Zhaojin Mining Industry Co., a Shandong-based gold miner, increased 4.2 percent to HK$16.04. Jiangxi Copper Co., China’s biggest producer of the metal, rose 2.8 percent to HK$27.45.
The London Metal Exchange Index of prices for six industrial metals including copper and aluminum climbed 2.2 percent yesterday, while gold futures reached a record in New York.
Joy Global Inc. is in talks to buy International Mining Machinery Holdings Ltd. (1683), a Chinese maker of coal-mining equipment, according to two people with knowledge of the matter, who declined to be identified because the discussions are private. Shares in International Mining, controlled by private- equity firm Jordan Co., shares have been suspended from trading since July 12.
Golden Shield Holdings Industrial Ltd., a producer of cotton yarn, tumbled 10 percent to 63 Hong Kong cents, while China Fiber Optic Network System Group Ltd., a maker of optic patch cords, rose 6.7 percent to HK$1.28 on their first day of trading.
Futures on the Hang Seng Index declined 0.6 percent to 21,865. The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, rose 1.3 percent to 21.26, indicating options traders expect a swing of 6.1 percent in the Hang Seng Index in the next 30 days.
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.
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