Hong Kong Stocks Decline as U.S. Debt Impasse Threatens Exports

Hong Kong stocks fell, eroding last week’s advance, as U.S. lawmakers failed to agree on raising the federal debt ceiling, risking a default that would threaten a global economic recovery and hurt Asian exporters’ earnings.

Esprit Holdings, a clothier with more than 85 percent of sales outside Asia, fell 3.5 percent. PetroChina Co., the nation’s largest oil company, dropped 2.9 percent. HSBC Holdings Plc (HSBA) slid 0.6 percent on concern a U.S. default may hurt lenders’ earnings. China Railway Construction Corp., builder of more than half the country’s rail links since 1949, sank 6.7 percent while China Railway Group Ltd. lost 6.7 percent after two high-speed trains collided in China, killing at least 36 people.

“The ongoing saga of needing to raise the debt ceiling in the U.S. is likely to remain a concern for stock markets as the deadline heads closer with no apparent signs of agreement,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “If talks fail, we should expect a credit-rating downgrade and another turn downwards in the U.S. economy.”

The Hang Seng Index slid 0.7 percent to 22,293.29 at the 4 p.m. close of trading in Hong Kong. That pared last week’s 2.6 percent advance, the steepest among Asian benchmark indexes, as steps by European leaders toward easing the region’s sovereign debt crisis, including fresh aid for Greece, eased doubts about the global recovery.

Exporters Fall

The Hang Seng China Enterprises Index, which tracks so- called H shares of Chinese companies, dropped 1.3 percent to 12,440.64 today.

Exporters slumped as a failure to raise the U.S. federal debt limit intensified concern of a default that may derail a global economic recovery. House Speaker John Boehner told Republicans there’s no agreement on a plan for raising the ceiling before a default threatened for Aug. 2.

The impasse has boosted the chance Standard & Poor’s Ratings Agency will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.

Esprit fell 3.5 percent to HK$23.30. PetroChina dropped 2.9 percent to HK$11.34 and rival Cnooc Ltd. (883) slipped 1.2 percent to HK$17.12 as New York-traded crude oil fell as much as 1.1 percent today.

Bank Threat

China Shenhua Energy Co., the nation’s largest coal miner, fell 0.9 percent to HK$39.65. Jiangxi Copper Co., China’s biggest producer of the metal, lost 0.2 percent to HK$27.35 after copper futures declined as much as 0.9 percent in New York.

HSBC retreated 0.6 percent to HK$77.50 amid speculation that bank earnings will be hurt if a U.S. debt default were to set off a financial crisis.

“The fact that the talks seem to have stalled will make stock markets much more sensitive to any further deterioration in negotiations,” said Tim Schroeders, who helps manage $1 billion in global equities at Pengana Capital Ltd. in Melbourne. China Railway Construction sank 6.7 percent to HK$5.46, while China Railway Group Ltd. (601390) lost 6.7 percent to HK$3.05 after the high-speed train crash in Wenzhou city at the weekend. CSR Corp., China’s largest train maker, slumped 14 percent to HK$5.89.

The Chinese government will slow railway investment as it pays more attention to safety and travelers switch to other transport, according to Barclays Plc and Shenyin & Wanguo Securities Co. The high-speed train accident may damp demand for property in cities along the new railway lines, said Credit Suisse Group AG.

Futures Drop

Futures on the Hang Seng Index dropped 0.7 percent to 22,320. The HSI Volatility Index climbed 7.5 percent to 18.60. The benchmark gauge for Hong Kong stock options indicates traders expect a swing of 5.3 percent in the Hang Seng Index (HSI) in the next 30 days.

Among stocks that rose today, China Precious Metal Resources Holdings Co. gained 0.6 percent to HK$1.63. The mining company signed a letter of intent to buy a gold mine in Yunnan province for as much as 2 billion yuan ($310 million), according to a company statement to Hong Kong’s stock exchange on July 22.

The Hang Seng Index retreated 2.6 percent this year through July 22, compared with a gain of 7 percent by the S&P 500 and a drop of 1.4 percent by the Stoxx Europe 600 Index. Stocks in the Hong Kong benchmark were valued at 12 times estimated earnings on average, compared with 13.5 times for the S&P 500 and 11.1 times for the Stoxx 600.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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

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