Hong Kong Stocks Retreat as China Targets Slower Growth

Hong Kong stocks fell, with the Hang Seng Index (HSI) dropping to its lowest close in a week, as China said it’s targeting the slowest economic growth since 2004.

Industrial & Commercial Bank Ltd. (1398), the world’s biggest lender by market value, decreased 2.7 percent. BYD Co., a Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., slid 4 percent on speculation vehicle demand in China fell as the economy slowed. PetroChina Co. declined 2.7 percent after the company’s chairman said refining losses last year were bigger than expected.

The Hang Seng Index dropped 1.4 percent to 21,265.31 as of the 4 p.m. close in Hong Kong, the lowest level since Feb. 27. The gauge advanced the past three months, its longest such winning streak since December 2009, as China cut reserve ratios for lenders amid signs the U.S. economy is improving, and optimism confidence Europe will contain its debt crisis.

Asia is all about moderation now,” said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages about $150 billion. “It’s a much more challenging market to be bullish in. While the risk of financial Armageddon in Europe is gone, Europe is still going to have a large recession. Europe is China’s biggest export market. That tempers optimism on how much the risk rally can continue.”

The Hang Seng China Enterprises Index (HSCEI) of mainland companies decreased 2.3 percent to 11,470.70. The Stock Exchange of Hong Kong shortened its midday trading break from today. Afternoon trading will open 30 minutes earlier and run from 1 p.m. until 4 p.m.

‘Proactive’ Policies

AIA Group Ltd. (1299), partially owned by bailed out insurer American International Group Inc., was suspended after a document obtained by Bloomberg showed the U.S. parent company will sell about $6 billion worth of its shares at between HK$27.15 to $27.50 apiece. The shares last traded at HK$29.20 on March 2.

Chinese lenders declined as Premier Wen Jiabao said today the government will target economic growth of 7.5 percent this year, the lowest goal since 2004, and inflation of about 4 percent. Wen reiterated that the government will maintain “proactive” fiscal and “prudent” monetary policies.

ICBC, as China’s biggest lender is known, fell 2.7 percent to HK$5.47. China Construction Bank Corp. (939), the nation’s second- largest lender, slipped 2 percent to HK$6.43.

“This low growth target with relatively high inflation suggests monetary policy will be relatively relaxed,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong. “This in turn will help increase bank lending and boost investment.”

China Autos

The mainland’s carmakers slipped as automobile sales in the world’s second-largest economy may have fallen 3 percent in the first two months of the year from a year earlier, based on median estimate of five analysts compiled by Bloomberg. That would be the biggest drop since 2005, when they fell 8.9 percent, according to the China Association of Automobile Manufacturers, which will release industry data later this month.

BYD dropped 4 percent to HK$23.80. Great Wall Motor Co., a Chinese maker of sports utility vehicles, slid 3.6 percent to HK$15.08. Brilliance China Automotive Holdings Ltd. (1114), a partner of Bayerische Motoren Werke AG, declined 2.5 percent to HK$8.72.

China will control the increase in auto manufacturing capacity and encourage mergers and reorganizations in the industry, according to a report that Wen delivered at the nation’s legislature.

‘Widening Losses’

The government will promote new-energy vehicles and encourage the scrapping of old vehicles to reduce pollution, according to a separate report today by the National Development and Reform Commission, the country’s top economic planner.

PetroChina, the mainland’s second-largest refiner, fell 2.7 percent to HK$11.44. Crude refining “losses are widening” as oil prices increased, Chairman Jiang Jiemin said in Beijing today. “We can’t see a turnaround in the situation.”

China, which controls fuel prices to curb inflation, introduced a pricing system in December 2008 that allows retail fuel prices to be adjusted when the moving average of a basket of three crude varieties changes more than 4 percent over 22 working days.

Sun Art Retail Group Ltd., China’s largest hypermarket operator, tumbled 6.7 percent to HK$9.93 after reporting slower same-store sales growth. Sinopac Securities Asia Ltd. downgraded the stock to “neutral” from “buy,” citing weakening consumer spending in the mainland.

The Hang Seng Index rose 17 percent this year through March 2. The rally boosted the price of shares on the gauge to 11 times estimated earnings. That compares with 13.1 times for the Standard & Poor’s 500 Index and 11.1 times for the Stoxx Europe 600 Index.

Among stocks that advanced, Pacific Century Premium Developments Ltd. (432), the property unit of billionaire Richard Li’s PCCW Ltd., surged 28 percent to HK$1.81 as it resumed trading after announcing plans to buy back as much as 38 percent of its shares at HK$1.85 each.

Futures on the Hang Seng expiring in March dropped 1.8 percent to 21,157. The HSI Volatility Index (VHSI) increased 8.4 percent to 22.41, indicating options traders expect a swing of 6.4 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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