Hong Kong Stocks Fall on Signs of Slowing China Growth, Europe

Hong Kong stocks (HSI) fell for a second day as cooling Chinese inflation signaled weaker economic growth and on speculation Europe’s debt crisis will continue as a summit in Brussels ended without a “unanimous agreement” to resolve the two-year-old sovereign debt crisis.

HSBC Holdings Plc (HSBA), Europe’s biggest lender by market value, dropped 3.7 percent as European Commission President Jose Barroso said European leaders would have preferred a “unanimous agreement” on ways to strengthen the region. China Overseas Land & Investment Ltd. (688), the biggest mainland developer listed in Hong Kong, sank 4.1 percent after a Chinese official said the government should maintain property curbs. China Outfitters Holdings Ltd. tumbled 9.2 percent as the maker of men’s casual wear started trading today.

“It’s quite disappointing that Europe’s leaders haven’t come up with a concrete solution to resolve the region’s sovereign debt crisis,” said Cedric Ma, Hong Kong-based senior strategist at Convoy Asset Management Ltd., which oversees the equivalent of $260 million. “China may further ease the reserve ratio requirement for banks as inflation slows. China won’t cut interest rates immediately as housing prices remain high.”

The Hang Seng Index fell 2.7 percent to 18,586.23 at the 4 p.m. in Hong Kong, with all but one share falling in the 48- member gauge. The measure declined 2.4 this week after Standard & Poor’s said it may cut credit ratings on Germany, France and 13 other members of the euro amid the worsening debt crisis.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong decreased 3.2 percent to 10,066.63. Stocks extended declines as reports showed China’s industrial output expanded by the least since August 2009 and the nation’s inflation rate cooled to the slowest pace in 14 months in November.

‘Can’t Be Optimistic’

“There’s an expectation that China may stop tightening monetary policy while the country is slowing down,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees the equivalent of $68 billion. “Curbing inflation is a good thing, but the reason why inflation is slowing is because the global economy is slowing. If you see that fact, you can’t be so optimistic.”

Companies that receive revenue from Europe retreated as French President Nicolas Sarkozy said British Prime Minister David Cameron made “unacceptable” demands regarding treaty amendments.

Anti-Deficit Rules

European leaders stepped up the fight against the debt crisis, channeling as much as 200 billion euros ($267 billion) to the International Monetary Fund and bowing to European Central Bank demands for a tightening of anti-deficit rules. IMF Managing Director Christine Lagarde said a European Union contribution of as much as 200 billion euros to the fund will be confirmed within 10 days.

HSBC sank 3.7 percent to HK$60.05. Standard Chartered Plc (2888), a London-based bank that gets more than half of its revenue from the Asia-Pacific region, slid 1.5 percent to HK$172.20. Esprit Holdings Ltd. (330), a Hong Kong-base clothier that counts Europe as its biggest market, fell 1.7 percent to HK$10.76.

Chinese developers declined after Ren Xingzhou, a director at the market economy research department of the State Council’s Development Research Center, wrote in a People’s Daily article that China should maintain property curbs as housing prices in some cities are still relatively high.

China Overseas Land declined 4.1 percent to HK$13.74. China Resources Land Ltd. (1109), a state-owned real-estate company, dropped 1.7 percent to HK$12.70. Agile Property Holdings Ltd. (3383), the Chinese developer in which JPMorgan Chase & Co. owns a stake, fell 4.6 percent to HK$6.28.

Default Report

Renhe Commercial Holdings Co. slumped 9.6 percent to 94 Hong Kong cents. The Hong Kong Economic Journal newspaper reported that Cheung Chung Kiu, chairman of C C Land Holdings Ltd. (1224), defaulted on 2 billion yuan ($314 million) in payments for properties bought from Renhe.

C C Land, a developer in western China, declined 9.3 percent to HK$1.57. Eva Chan, a spokeswoman for C C Land in Hong Kong, said the company and its chairman didn’t default on any debt. Neither Cheung nor C C Land was involved in the transaction, said Renhe in a statement to the Hong Kong stock exchange today.

Companies that started trading today in Hong Kong slumped as the appetite for new listings cooled amid Europe’s worsening debt crisis. The initial public offerings come with the benchmark Hang Seng Index down 19 percent this year through yesterday.

China Outfitters, which raised HK$727.5 million ($93.5 million) selling shares at HK$1.64 each, slumped 9.2 percent to HK$1.49. China Lifestyle Food & Beverages Group Ltd., a snack- food maker, tumbled 17 percent to HK$2.20 from its IPO price of HK$2.65.

‘Crowded Market’

“The poor reception to IPOs reflects the weak global investor sentiment,” Convoy’s Ma said. “The market is also looking a little bit crowded since a lot of companies are trying to raise cash at the same time.”

The Hang Seng Index’s decline this year dragged valuations of the companies in the benchmark to 10.1 times estimated earnings, down from 14.4 times on Dec. 31, according to Bloomberg data. The Standard & Poor’s 500 Index trades at 12.5 times.

Futures on the Hang Seng Index slid 2.7 percent to 18,582. The HSI Volatility Index climbed 8.7 percent to 32.26, indicating options traders expect a swing of 9.2 percent in the benchmark index over the next 30 days.

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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