Hong Kong Stocks Decline as Lenders Plunge on Rate Cut

Hong Kong stocks fell, with the Hang Seng Index (HSI) retreating from a two-month high, as banks plunged on a declining earnings outlook after China cut interest rates. Losses were limited as developers gained on prospects for lower rates to drive housing demand.

China Construction Bank Corporation (939) led lenders down after Barclays Plc. said lower interest rates could cut into profits next year. China Overseas Land & Investment Ltd. paced gains among developers after the central bank widened discounts available for mortgages. PetroChina (857) Co. Ltd. fell 0.5 percent on a report the nation may cut fuel prices.

The Hang Seng Index fell less than 0.1 percent to 19,800.64 at the close, rising 1.9 percent on the week. Trading volume on the gauge was 13 percent higher than the 30-day average. The Hang Seng China Enterprises Index (HSCEI) of mainland companies dropped 0.2 percent to 9,679.62.

“China is not insulated from the crisis,” said Andrew Sullivan, principal trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “The rate cut helps the economy but people can’t find anything to do with the money they borrowed. It doesn’t generate enough economic growth so there is no rush to chase after the market.”

The benchmark Hang Seng fell 9 percent from this year’s peak in February amid concern economic growth is slowing in China and the U.S. as Europe’s debt crisis spreads. Companies on the gauge trade at 10.3 times estimated earnings on average through yesterday, compared with 13.1 for the Standard & Poor’s 500 Index and 10.7 for the Stoxx Europe 600 Index.

Financial stocks slid after the People’s Bank of China cut the one-year lending rate the second time in a month. Net income in the sector is expected to drop by 10 percent next year at best, as interest margins narrow due to the rate cuts, according to Barclays analyst May Yan.

Lenders Drop

China Construction Bank sank 2.7 percent to HK$5.15. Agricultural Bank of China Ltd. retreated 2.5 percent to HK$3.11. The European Central Bank yesterday joined its Chinese counterpart in easing, cutting the currency union’s key rate to a record low.

“Joint actions by global central banks once again have failed to impress,” Hao Hong, head of Chinese research at Bank of Communications Co. in Hong Kong, said in a report. “Monetary loosening is likely to fail again -- until the measures are strong enough to change the trajectory of decelerating economic growth.”

Mainland developers rose after China’s central bank also widened the discount banks can offer on mortgages to 30 percent from 20 percent. Shanghai branches of Agricultural Bank of China, China Construction Bank Corp. and Industrial & Commercial Bank of China today began to offer the lower rates to first-time home buyers, news portal Netease reported today.

Developers Climb

China Overseas Land (688) rose 4.8 percent to HK$19.12. Sino- Ocean Land Holdings Ltd. gained 5 percent to HK$4.38.

Hang Seng futures declined 0.3 percent to 19,821. The HSI Volatility Index slid 1 percent to 18.41, indicating traders expect a swing of about 5.3 percent in the benchmark index during the next 30 days.

Oil producers fell on a report China gasoline and diesel prices may drop by about 400 yuan per ton on July 11, according to China Securities Journal today, citing Xinhua oil price system data.

PetroChina slid 0.5 percent to HK$9.88. Cnooc Ltd., China’s biggest offshore energy explorer, retreated 1.3 percent to HK$15.50.

Among advancing shares, Foxconn International Holdings Ltd (2038) rose 3.7 percent to HK$2.78. The manufacturer is developing smartphones with Amazon.com Inc. that run Google Inc.’s Android mobile operating system to challenge Apple Inc.’s iPhone, according to two people who asked not to be identified because the plans have not been made public.

To contact the reporter on this story: Crystal Chui in Hong Kong at tchui4@bloomberg.net

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

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