Hong Kong stocks erased gains, falling from a six-month high, as China’s move to cut lending curbs for banks fueled concern the world’s second-biggest economy may be heading for a sharper slowdown than expected.
Yanzhou Coal Mining Co. fell 2 percent after benchmark prices in the world’s biggest consumer of the fuel dropped. China Petroleum & Chemical Corp. (600028), Asia’s largest refiner, declined 5.5 percent as crude oil futures rallied. Foxconn International Holdings Ltd. (2038) sank 4.9 percent after the electronics manufacturer raised wages at Chinese factories.
The Hang Seng Index dropped 0.3 percent to 21,424.79 at the close, after climbing as much as 1.3 percent. The gauge jumped 5.6 percent on Dec. 1, a day after China cut the reserve-ratio requirement for the first time since 2008.
“The fact that they’ve cut the reserve ratio is making people think there could be a more serious slowdown in China than previously thought,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “A lot of people are still reluctant to invest more money in the market ahead of the results season in Hong Kong.”
The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong, also known as the H-Share Index, slid 0.4 percent to 11,669.51 after rising as much as 1.8 percent earlier.
Signs of Overheating
The benchmark Hang Seng Index (HSI) gained last week for a seventh week, the longest such winning streak since the period ended Oct. 15, 2010. The rally drove the gauge’s 14-day relative strength index, a measure of momentum, to about 74 on Feb. 17, exceeding the threshold of 70 that indicates to some traders it’s overbought.
The Hang Seng advanced 17 percent this year through Feb. 17 amid signs the U.S. economy is improving and on optimism Europe will contain its debt crisis. Shares in the gauge traded at 10.9 times estimated earnings, compared with 13 times for the Standard & Poor’s 500 Index and 11 times for the Stoxx Europe 600 Index.
Chinese coal producers declined as benchmark thermal coal prices fell to the lowest in almost 11 months due to slower demand. Prices are falling because utilities stockpiled more fuel than was needed, said David Fang, a director from the China Coal Transport and Distribution Association.
Coal Stocks Decline
Yanzhou Coal dropped 2 percent to HK$19.08. China Shenhua Energy Co. (1088), the nation’s biggest producer of the fuel, slipped 1.3 percent to HK$35.60. China Coal Energy Co. fell 1.8 percent to HK$10.12.
China’s refineries dropped as crude advanced to the highest since May in New York. China Petroleum, known as Sinopec, sank 5.5 percent to HK$8.85. PetroChina Co., the country’s No. 2 refiner, slid 1.4 percent to HK$11.50.
“Higher international crude prices certainly sparked some concern among investors that Sinopec may face big losses in refining,” said Shi Yan, an analyst with UOB-Kay Hian Ltd. in Shanghai. “It serves as a reminder on how vulnerable Sinopec is to fluctuations in crude prices.”
Foxconn, whose parent Hon Hai Precision Industry Co. makes Apple Inc.’s iPhone and iPad, dropped 4.9 percent to HK$5.62. The group raised wages for the third time since 2010, including a doubling of salaries in Shenzhen, the southern Chinese city which hosts its largest manufacturing facilities, the Taipei- based company said in a Feb. 17 statement.
Chinese developers advanced after the central bank said the proportion of cash that mainland banks will be allowed to lend will rise half a percentage point from Feb. 24. The reduction in the reserve ratio may add 400 billion yuan ($64 billion) to the financial system, according to Australia & New Zealand Banking Group Ltd.
Guangzhou R&F Properties Co., a developer in the southern Chinese city, climbed 2.4 percent to HK$9.45. Agile Property Holdings Ltd. (3383), a Chinese developer partly owned by JPMorgan Chase & Co., jumped 7 percent to HK$9.91.
Futures on the Hang Seng Index expiring this month lost 0.4 percent to 21,363. The HSI Volatility Index (VHSI) advanced 4.8 percent to 23.84, indicating options traders expect a swing of 6.8 percent in the benchmark index over the next 30 days.
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