Hong Kong Stocks Retreat for Second Day Amid Europe Concern

Hong Kong stocks declined for a second day, dragging the benchmark index to its lowest close in three weeks, as rising Italian bond yields stoked concern the euro-zone debt crisis is spreading.

HSBC Holdings Plc (HSBA), Europe’s largest lender, declined 2.1 percent in Hong Kong. Air China Ltd. (601111), the world’s biggest airline by market value, fell 3.9 percent after Daiwa Securities Group Inc. downgraded Chinese carriers. Esprit Holdings Ltd. (330), the clothier that counts Europe as its biggest market, sank 4.3 percent after it was removed from the MSCI Hong Kong Index.

“The European situation has gone from bad to worse and that’s going to continue to put pressure on global equities,” Nader Naeimi, a Sydney-based strategist for AMP Capital Investors Ltd., said on Bloomberg Television. AMP manages nearly $100 billion.

The Hang Seng Index decreased 2 percent to 18,960.90 at the 4:00 p.m. close in Hong Kong, its lowest close since Oct. 24. All but two stocks in the 46-member benchmark index dropped. The gauge slumped 3.6 percent last week as Europe’s sovereign-debt crisis stirred political turmoil, with Italy and Greece replacing their leaders.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 2.9 percent to 10,332.09.

‘Worsening Credit Quality’

Stocks declined after Italy’s 10-year bond yield rose again above the 7 percent threshold that led Greece, Ireland and Portugal to seek bailouts.

Italian prime minister-designate Mario Monti will announce his new cabinet today as he faces the task of trimming Europe’s second-biggest debt. Lawmakers in Greece will vote whether to give Prime Minister Lucas Papademos a three-month mandate to implement austerity measures and ensure a bailout of 130 billion euros ($176 billion) from European partners.

HSBC dropped 2.1 percent to HK$60.75. Standard Chartered Plc (STAN), the U.K.’s second-biggest bank, fell 0.9 percent to HK$166.50.

Hong Kong lenders also declined after the International Monetary Fund said in a report today that rising foreign currency loans in the territory may strain bank funding and lead to “worsening credit quality.”

Hang Seng Bank Ltd. (11), a unit of HSBC, slipped 2.4 percent to HK$96.30. Bank of East Asia Ltd. (23) sank 3.1 percent to HK$26.85. BOC Hong Kong Holdings Ltd. (2388), the largest Hong Kong-based lender, fell 1.9 percent to HK$17.24.

Daiwa cut its rating on the Chinese airline sector to “neutral” from “positive,” saying passenger load factors and yields may decline in 2012. Air China dropped 3.9 percent to HK$6.34. China Southern Airlines Co., the biggest domestic carrier, fell 1.4 percent to HK$4.23.

Earnings Performance

The Hang Seng Index (HSI) declined 16 percent this year through yesterday, driving down its valuation to 10.5 times estimated profit, according to data compiled by Bloomberg. The price-to- earnings ratio reached a low of 9.4 times on Sept. 30.

China Life Insurance Co., the nation’s biggest insurer, declined 5.1 percent to HK$21.25 after it reported premium income grew 1.4 percent to 282.1 billion yuan ($44 billion) in the 10 months through October from the year earlier, missing expectations, according to Bocom International.

Shandong Weigao Group Medical Polymer Co. tumbled 9.3 percent to HK$6.73 after the medical-equipment maker posted earnings that missed analysts’ estimates.

Of the 46 companies on the Hang Seng Composite Index that reported results since Oct. 11, 15 missed analysts’ estimates, while eight exceeded expectations, according to data compiled by Bloomberg News.

MSCI Reshuffle

Stocks to be removed from MSCI’s Hong Kong index fell. Esprit, which was left off after losing more than 74 percent of its value this year as earnings slumped, sank 4.3 percent to HK$9.61. China High Speed Transmission Equipment Group Co., the nation’s largest maker of wind-turbine gears, plunged 6.3 percent to HK$4.34. China Shineway Pharmaceutical Group Ltd. (2877) tumbled 6.2 percent to HK$10.08. Greentown China Holdings Ltd. (3900), a homebuilder, fell 4.5 percent to HK$4.24.

Among the stocks that will be added by MSCI, First Pacific Co., the food, utilities and resources company controlled by billionaire Anthoni Salim, gained 2.6 percent to HK$8.62. Haier Electronics Group Co., a Chinese appliance maker, jumped 5.5 percent to HK$7.90. The changes to the index will take effect after the close of trading on Nov. 30.

Futures on the Hang Seng Index expiring this month dropped 2.1 percent to 18,889. The HSI Volatility Index advanced 5.7 percent to 35.51, indicating options traders expect a swing of 10 percent in the gauge in the next 30 days.

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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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