Hong Kong Stocks Snap Rally on European Loans, U.S. Home Sales

Hong Kong stocks (HSI) fell, snapping two days of gains, as European banks sought record loans from the region’s central bank and sales of existing U.S. homes missed forecasts, damping the global demand outlook.

Exporters and shipping companies led declines. Li & Fung Ltd. (494), the biggest supplier to Wal-Mart Stores Inc., dropped 2.9 percent. Cosco Pacific Ltd., which operates container terminals in China and Greece, dropped 1 percent. Belle International Holdings Ltd., which makes women’s shoes and leather products, led Chinese fashion retailers lower.

The Hang Seng Index fell 0.2 percent to 18,378.23 at the close in Hong Kong, after rising 1.9 percent over the past two days. Twenty-three stocks rose while 21 fell in the 48-member gauge. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong declined 0.1 percent to 9,944.62. Shares pared their losses in late trading as European stocks advanced before the release of U.S. jobless claims and consumer confidence data.

“The European Central Bank doesn’t seem to have stepped up to the plate for bond buying, which I think is negative, but at least they are acting as a lender of last resort for banks,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “Pumping money into the banking system is essential because European banks have to keep up lending to businesses and consumers, and it’s also essential in taking pressure off the banks to sell government bonds.”

The Hang Seng Index fell 20 percent this year as banks and developers declined on China’s measures to curb inflation and property prices. Concern Europe will fail to contain its debt crisis also dragged on shares.

Price-Earnings

Companies in the gauge traded at 10 times forecast earnings, down from 14.4 times on Dec. 31, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index (SPXL1) trades at 12.6 times.

Futures on the Standard & Poor’s 500 Index rose 0.5 percent today. The gauge advanced 0.2 percent in New York yesterday.

Futures on the Hang Seng Index rose 0.1 percent to 18,415. The HSI Volatility Index slid 6 percent to 24, the lowest since Aug. 4, indicating options traders expect a swing of 6.9 percent in the benchmark over the next 30 days.

In Europe, 523 banks in the monetary union took a record 489 billion euros ($639 billion) in three-year loans from the ECB yesterday, exceeding the median estimate of 293 billion euros by economists surveyed by Bloomberg. The central bank is offering the loans after saying earlier it wouldn’t prop up the region with bond purchases. Europe accounts for about 18 percent of China’s exports, according to Shenyin & Wanguo Securities Co.

Shippers, HSBC

Cosco Pacific fell 1 percent to HK$8.91. Hutchinson Whampoa Ltd. (13), which gets more than half its revenue from Europe, slipped as much as 1.5 percent before closing 0.3 percent lower at HK$65.40. HSBC Holdings Plc (HSBA), Europe’s largest lender, declined 0.3 percent to HK$58.95 in Hong Kong.

Companies that sell to the U.S. retreated after sales of existing homes were short of estimates in November and mortgage applications fell even as the rates on 30-year fixed loans declined to the lowest on record.

Li & Fung slid 2.9 percent to HK$14.14. Techtronic Industries Co., which makes Ryobi power tools, declined 1.2 percent to HK$7.71.

China-based retailers retreated even after a survey by the People’s Bank of China showed consumers expect less inflation next year. Belle International dropped 1.3 percent to HK$13.84. Daphne International Holdings Ltd., a shoe seller, retreated 2 percent to HK$8.40. China Resources Enterprises Ltd. (291), which operates fashion distribution and supermarket businesses, slipped 1.5 percent to HK$27.05.

‘Poor Export Outlook’

“There’s no confidence in the market and the worry is focused on the economic slowdown and a poor export outlook,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors are worried the government doesn’t have many tools to bolster growth now as debt levels are now higher than a couple of years ago.”

More Chinese bankers are forecasting a further loosening in monetary policy as economic growth slows, another survey by the central bank showed.

Among stocks that rose, China Resources Land Ltd., a state- owned developer, rose 2.2 percent to HK$12.96 and Evergrande Real Estate Group Ltd. (3333), a Guangzhou-based developer, advanced 3.9 percent to HK$3.21.

Chinese developers will benefit from policy easing expectations, said Masterlink Securities Corp., which remained positive on the industry. The environment for developers will improve next year, analyst Dai Kai-yu wrote in a note.

To contact the reporter on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.