Hong Kong Stocks Rise as China New Loans Trump Slower GDP

Hong Kong stocks fell, with the Hang Seng Index (HSI) heading for a second day of declines, as China’s foreign direct investment fell for a fifth month, underscoring concern that Europe’s debt crisis is hurting the economy.

Esprit Holdings Ltd., which depends on Europe for about 80 percent of its sales, dropped 2.9 percent. China Overseas Land & Investment Ltd. led a gauge of property developers lower after a report Shanghai won’t loosen property curbs. SouthGobi Resources Ltd. plunged 10 percent after saying Mongolia requested the suspension of some its mines.

The Hang Seng Index dropped 0.7 percent to 20,462.03 as of 2:08 p.m. in Hong Kong, with more than twice as many shares declining as advancing. Trading volume on the gauge was almost 15 percent below the 30-day intraday average. The Hang Seng China Enterprises Index (HSCEI) of mainland companies lost 1.2 percent to 10,713.62.

China’s economy is still slowing down,” said Satoshi Nishitsugu, a senior strategist at Okasan Securities Co. in Tokyo. “Investors are worried about the external environment and Europe’s problems are weighing on the market.”

Futures on the Standard & Poor’s 500 Index (SPXL1) were little changed today after the gauge fell less than 0.1 percent in New York yesterday. Most U.S. shares rose after a report showed retail sales gained 0.8 percent in March, almost three times as much as economists projected.

Spanish Yields Surge

Shares of companies that do business in Europe fell before a Spanish debt auction today that comes as yields on the country’s 10-year bonds rose to the highest level this year and the cost of insuring against the nation’s default reached a record.

Esprit Holdings lost 2.9 percent to HK$15.68. Foxconn International Holdings Ltd. (2038), a maker of mobile phones that depends on Europe for a quarter of its operating profit, sank 5.9 percent to HK$4.51.

Mainland companies listed in Hong Kong extended declines today after the Ministry of Commerce said foreign direct investment in China dropped 6.1 percent in March, falling for a fifth month. Spending in China by European Union companies slumped by a third in the first two months of the year as the region grapples with its debt crisis, the data showed.

“We got some negative FDI numbers and so there will be some selling, but it won’t be as bad as people think because the market has already fallen so much amid concern that China would have a hardlanding,” Okasan’s Nishitsugu.

Rally Slows

Hong Kong’s equity benchmark has retreated about 5.7 percent since the start of March as China cut its economic growth target and on speculation stocks had risen too fast after the index advanced 15 percent in the first two months of the year. Stocks on the gauge trade at an average of 10.4 times estimated earnings, compared with 11 times on Feb. 29.

China Overseas Land & Investment, the mainland’s biggest developer by market value, fell 2 percent to HK$16.08. China Resources Land Ltd. declined 0.9 percent to HK$14.82.

Shanghai won’t soften controls or change existing policies on the property market in China’s biggest city, Xinhua reported yesterday, citing Mayor Han Zheng. China has toughened requirements for down payments and mortgages, and imposed restrictions on the number of homes each family is allowed to buy. The nation’s first-quarter home sales fell 18 percent after the government reiterated it will maintain curbs on the market.

Hong Kong stocks also declined today after Pacific Investment Management Co., which runs the world’s biggest mutual fund, said China will curb economic growth to address overinvestment and bad loans that built up after policy makers used stimulus to combat the 2008 crisis.

Slowing Rally

SouthGobi Resources (SGQ) plunged 10 percent to HK$49.80 after saying Mongolia requested the suspension of projects including the Ovoot Tolgoi mine while it reviews Aluminum Corp. of China Ltd.’s proposed purchase of a controlling stake in the company.

The aluminum producer slid 2.7 percent to HK$3.66.

Futures on the Hang Seng Index expiring this month fell 0.6 percent to 20,456. The HSI Volatility Index (VHSI) slumped 0.9 percent to 21.19, indicating options traders expect a swing of about 6.1 percent in the benchmark index over the next 30 days.

Among shares that advanced today, Yue Yuen Industrial Holdings Ltd. (551) gained 1.4 percent to HK$26.30 after U.S. retail sales increased. Li & Fung Ltd., the biggest supplier to Wal- Mart Stores Inc., added 0.4 percent to HK$16.86.

-- With assistance from Kana Nishizawa in Hong Kong. Editors: Jason Clenfield, Jim Powell

To contact the reporters on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net; Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

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

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