Hong Kong’s Hang Seng Index Poised for Biggest Weekly Decline Since 2008

Hong Kong stocks fell, dragging the benchmark Hang Seng Index to its worst weekly decline in almost three years, on concern policy makers are running out of tools to avert recession as Europe’s debt crisis worsens and economic growth in the U.S. slows.

Li & Fung Ltd. (494), the biggest supplier of clothes and toys to retailers including Wal-Mart Stores Inc., decreased 3.5 percent. HSBC Holdings Plc (HSBA), Europe’s No. 1 lender by market value, fell 1.9 percent on speculation the bank may report lower revenue as the industry faces funding challenges arising from Europe’s debt crisis. Aluminum Corp. of China Ltd., the nation’s biggest producer of the light metal, slumped 5.6 percent after a gauge of metal prices in London extended declines. The HSI Volatility Index jumped 5.1 percent.

The Hang Seng Index fell 1.4 percent to 17,668.83 at the close, paring losses of as much as 3 percent after policy makers from the Group of 20 nations vowed to strongly address “heightened” risks to the global economy and pushed Europe to contain its sovereign debt crisis.

“Investors are selling regardless of stock prices, which are already extremely cheap,” said Hong Kong-based Yoji Takeda, who manages $1.1 billion at RBC Investment Management (Asia) Ltd. “There’s a possibility Europe’s worsening debt crisis could tip the world into another recession. There’s a risk markets will continue to fall.”

Recovery Concerns

Two stocks declined for each that rose in the 46-member benchmark Hang Seng Index. (HSI) The gauge tumbled 9.2 percent this week, the biggest weekly drop since October 2008, amid concern global economic growth will falter as Europe’s debt crisis worsens and the U.S. economic recovery stalls.

Exporters dropped after reports showed U.S. consumer confidence declined last week to the weakest point since the recession ended in June 2009, and the labor market showed few signs of improving, underscoring Federal Reserve concerns about the world’s biggest economy.

Li & Fung, which gets 65 percent of sales from the U.S., declined 3.5 percent to HK$12.52. Yue Yuen Industrial Holdings Ltd. (551), which makes shoes for Nike Inc., sank 3.9 percent to HK$18.44. Techtronic Industries Co. (669), maker of Ryobi power tools and Hoover vacuum cleaners that counts North America as its largest market, slipped 3.2 percent to HK$5.85.

Government Support

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong fell 1.8 percent to 9,033.09, paring declines of as much as 3.9 percent on speculation the mainland government will take steps to support markets.

China’s social security fund plans to invest more than 10 billion yuan ($1.6 billion) in the nation’s stock market, Securities Times reported today, citing an unidentified person. Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” G-20 finance ministers and central bank governors said in a statement late yesterday in Washington.

“Speculation on government support always works in China’s market, no matter if it’s true or not,” said Shanghai-based Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “That would help lift the index for the short- term but the market may need several rounds of injections to turn the pessimistic sentiment around.”

Deepening Crisis

The Hang Seng Index tumbled 28 percent from its November high through yesterday on concern the global economy will plunge into another recession. Shares on the index traded at 9.6 times estimated earnings, compared with 11.3 times for the Standard & Poor’s 500 Index.

HSBC fell 1.9 percent to HK$59.50, the biggest drag to the benchmark index and the lowest level since May 2009. The bank may report lower revenue for the second half of the year than previously estimated, analysts at Espirito Santo Investment Bank said after a meeting with Finance Director Iain Mackay.

“This looks like a top-line downgrade to us for HSBC, but for the wider European banking sector there are major concerns about funding,” the analysts, led by Joseph Dickerson, wrote in a note to clients yesterday.

The deepening European debt crisis has already forced BNP Paribas SA and Societe Generale SA, France’s two largest banks, to trim about 300 billion euros ($405 billion) off their balance sheets rather than tap the market for capital.

Banks Downgraded

Moody’s Investors Service downgraded the long-term deposit and senior debt ratings of eight Greek banks, citing the impact of impairments of the nation’s government bonds on the lenders’ capital levels.

Raw-material producers declined after a gauge of metal prices in London extended its fall. Copper dropped to the lowest in more than a year on speculation demand will fall.

Aluminum Corp. of China slumped 5.6 percent to HK$3.54. Jiangxi Copper Co., China’s biggest producer of the metal, fell 2 percent to HK$13.80, extending this week’s decline to 26 percent, the biggest drop since October 2008. Glencore International Plc, the world’s largest commodities trader, slid 3.4 percent to HK$48.60.

Futures on the Hang Seng Index lost 0.4 percent to 17,762. The HSI Volatility Index jumped 5.1 percent to 43.70, indicating options traders expect a swing of 12.5 percent in the Hang Seng Index in the next 30 days.

Hongguo International Holdings Ltd., a maker of ladies’ shoes, tumbled 15 percent to HK$1.96 on its trading debut. The company sold 500 million shares at HK$2.30 apiece in its initial share sale, pricing the IPO at the lower-end of the targeted range of as much as HK$3.24.

Market uncertainty forced companies including Sany Heavy Industry Co., the construction-equipment maker backed by China’s richest man, XCMG Construction Machinery Co. and China Everbright Bank Co. to postpone their Hong Kong IPOs.

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

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

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