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Hong Kong Stocks Fall as High Oil Prices Crimp Earnings Outlook

Hong Kong stocks declined as oil prices near a nine-month high sparked speculation energy costs will crimp growth and after Moody’s Investors Service said Greek is still at risk of default.

Air China Ltd. (753), the world’s biggest carrier, declined 5.9 percent on concern higher fuel prices will eat into profits. Hang Seng Bank Ltd. (11), the Hong Kong-based lender partly-owned by HSBC Holdings Plc (HSBA), dropped 1.6 percent after a report showed lending in the city declined last month. Esprit (330) Holdings Ltd., the Hong Kong-based clothier that counts Europe as its largest market sank 3 percent.

“The high oil prices is becoming a cause for worry,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “There also remains a Greece overhang. Following recent gains some investors may have decided to take some profits off the table and see whether company earnings can help justify valuations.”

The Hang Seng Index dropped 0.9 percent to 21,217.86 at the close, reversing gains of as much as 0.9 percent earlier. The gauge rose 16 percent this year through Feb. 24 on signs the U.S. economy is improving, on optimism Europe will contain its sovereign-debt crisis and amid bets China will relax monetary policy.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in the city declined 1.3 percent to 11,540.23, erasing gains of as much as 0.9 percent.

Airlines Drop

Transport companies declined as crude oil futures traded near the highest level since May, sparking concern the industry’s profits may be hurt.

Air China slipped 5.9 percent to HK$5.59. Cathay Pacific Airways Ltd. (293), Hong Kong’s biggest airline, declined 4.4 percent to HK$14.08.

Lenders fell after the Hong Kong Monetary Authority said new loans approved in January fell 3.8 percent from the month earlier to HK$10 billion, while mortgage drawdowns tumbled 31 percent.

Hang Seng Bank slipped 1.6 percent to HK$101.50. BOC Hong Kong Holdings Ltd. (2388), the city’s No. 1 bank by market value, dropped 2.1 percent to HK$21.30.

CLP Holdings Ltd. (2), Hong Kong’s biggest electricity supplier, slipped 0.5 percent to HK$66.15. The company said full-year net income fell 10 percent to HK$9.3 billion ($1.2 billion).

Greek Default

Companies that get revenue from Europe declined after Moody’s said the risk of a default by Greece remained high even after the debt-saddled nation won a second bailout last week.

Esprit sank 3 percent to HK$17.24. HSBC Holdings Plc., Europe’s biggest lender, slipped 1.2 percent to HK$69.60. Cosco Pacific Ltd. (1199), which operates port facilities in Greece, fell 1 percent to HK$11.46.

Chinese automakers rallied after foreign brands were left off a list of vehicles approved for state use. The move will help local companies get a bigger share of the government’s 80 billion yuan ($12.7 billion) fleet at the expense of foreign competitors Volkswagen AG, General Motors Co. and Toyota Motor Corp., China International Capital Corp. said in a report today.

“This signals strong government determination to cultivate China’s own auto industry,” analysts led by Zheng Dong wrote in the report. “Government support of local brands is greater than expected, even though rumors about the policy were many in the past several months.”

Great Wall Motor Co., a Chinese maker of sports utility vehicles, climbed 5.5 percent to HK$14.96. BYD Co. (1211), a mainland carmaker backed by billionaire Warren Buffett, advanced 2.6 percent to HK$25.40.

The recent rally boosted the valuation of Hong Kong shares to 10.9 times estimated earnings as of Feb. 24. That compares with 13.1 times for the Standard & Poor’s 500 Index and 11.1 times for the Stoxx Europe 600 Index.

Futures on the Hang Seng Index expiring this month dropped 1 percent to 21,202. The HSI Volatility Index jumped 7.3 percent to 23.09, indicating options traders expect a swing of 6.6 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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