Hong Kong Stocks Fall as Slowing China, Europe Offset U.S. Data

Hong Kong stocks fell, with the Hang Seng Index set for its first annual loss in three years, as concern that slower growth in China and Europe’s sovereign-debt crisis will damp company earnings offset better-than-estimated U.S. consumer confidence.

Just four of 40 members on the Hang Seng China Enterprises Index (HSCEI) advanced after the country announced slowing industrial profit growth and Goldman Sachs Group Inc. said the pace of expansion may slow in the largest emerging markets. China Mengniu Dairy Co., the country’s largest producer of milk products, plunged 24 percent after a batch of milk was found with high levels of a potentially cancer-causing toxin. Industrial & Commercial Bank of China, the world’s No. 1 lender by market value, dropped 3.3 percent.

The Hang Seng Index fell 0.6 percent to 18,518.67 at the 4 p.m. close after public holidays on Dec. 26 and Dec. 27. The gauge climbed 1.9 percent last week, taking this quarter’s advance to 5.9 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong fell 1.5 percent to 9,980.51.

“Declines are due to the slowing mainland economy and disappointment that rumors last week about China loosening money supply and undertaking other measures to boost the market did not materialize,” said Francis Lun, managing director at Lyncean Holdings Ltd. in Hong Kong. “Europe lacks the political resolve to fix its problems. The longer they delay it, the worse it will get.”

The Hang Seng Index fell 19 percent this year as banks and developers dropped on China’s measures to curb inflation and property prices. Esprit Holdings Ltd. (330) led declines in 2011, falling 72 percent through today, on concern Europe’s failure to contain its debt crisis will further undermine the brand in its biggest market.

Futures, Volatility

Two stocks (HSI) fell for each that gained in the 48-member Hang Seng Index. Companies in the gauge traded at 10.1 times forecast earnings, down from 14.4 times at the end of 2010, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index traded at 12.8 times.

Futures on the S&P 500 (SPXL1) fell 0.2 percent today. The index rose less than 0.1 percent in New York yesterday after the consumer confidence report was offset by larger-than-estimated declines in home prices and concern that Europe’s debt crisis is still far from being resolved.

Futures on the Hang Seng Index fell 0.8 percent to 18,440. The HSI Volatility Index climbed 4.7 percent to 24.73, indicating options traders expect a swing of 7.1 percent in the benchmark over the next 30 days.

China Mengniu fell the most in more than three years in Hong Kong trading after saying moldy feed given to cows led to excessive levels of a toxin in its milk. The shares tumbled 24 percent to HK$20.

Railway Companies Plunge

China Railway Construction Corp. (1186) fell 5.4 percent to HK$4.23 and China Railway Group Ltd. dropped 8.5 percent to HK$2.37. The railway ministry will invest 400 billion yuan ($63 billion) in infrastructure construction next year, less than the estimated 469 billion yuan spent in 2011 and the 709 billion yuan spent in 2010, the China Daily reported Dec. 24.

ICBC, the country’s biggest bank, declined 3.3 percent to HK$4.70 after announcing a plan to sell 50 billion yuan of bonds tomorrow, according to a statement on the website of the Chinese government bond clearinghouse.

Zoomlion Heavy Industry Science & Technology Co., a maker of cranes and heavy machinery, led construction-related companies lower after a report in 21st Century Business Herald that China’s government may purchase “normal” homes for use as affordable housing. The shares fell 4.2 percent to HK$8.50.

Anhui Conch Cement Co., the largest maker of the material, sank 5 percent to HK$22.85. China Overseas Land & Investment Ltd., a state-owned builder, dropped 3 percent to HK$13.80. China Resources Land Ltd., a smaller developer, slipped 2.7 percent to HK$12.84.

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

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