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Hong Kong Stocks Drop as Investers Wait for Stimulus

Hong Kong stocks fell, with the Hang Seng Index (HSI) poised to snap its longest rising streak since January, as investors wait for further stimulus measures in Europe and the U.S. to counteract a worsening economic outlook.

China Resources Enterprise Ltd. (291), a beverage maker and supermarket operator that rose 15 percent in the last five days, dropped 2.5 percent. China Shenhua Energy Co. (1088), the country’s biggest coal producer, fell 1.9 percent after Sanford C. Bernstein & Co. said prices for the fuel have yet to bottom. China Yurun Food Group Ltd., the nation’s second-largest meat- product supplier, rose 17 percent amid speculation China will release corn from its state inventory, reducing the cost of pork production.

The Hang Seng Index retreated 0.8 percent to 19,666.78 as of 1:24 p.m., with more than three shares falling for each that rose on the 49-member gauge, which increased 5 percent in the last five days. Volume fell 18 percent compared with the 30-day average for the time of day. The Hang Seng China Enterprises Index (HSCEI) of mainland companies dropped 1.2 percent to 9,648.07.

“It seems that the market has gone too far, without the stimulus package announced by the Federal Reserve, the market has an excuse for a single day pull-back,” Castor Pang, head of research at Core-Pacific Yamaichi International Ltd. in Hong Kong. “If they don’t announce interest-rate cuts in Europe, the short-term correction will become a major correction.”

The benchmark Hang Seng Index fell 8.6 percent from this year’s high in February through yesterday on signs Europe’s debt crisis is worsening while growth slows in China and the U.S. The drop cut the value of shares on the gauge to 10.5 times estimated earnings on average, compared with 13.4 for the Standard & Poor’s 500 Index and 11.2 for Stoxx Europe 600 Index.

Coal Producers

Coal producers fell after Michael Parker, a Hong Kong-based analyst at Sanford C. Bernstein, said prices of the fuel haven’t reached a bottom.

“There are, or will shortly be, hundreds of millions of tons of idled coal production capacity in China right now,” he wrote in an emailed research note today.

China Shenhua Energy fell 1.9 percent to HK$28.75. China Coal Energy Co. (1898), the second-largest coal producer, lost 1 percent to HK$7.29. Huaneng Renewables Corp., a clean-energy unit of China’s biggest electricity producer, fell 1 percent to 99 Hong Kong cents.

China Yurun rose 17 percent to HK$5.41, its steepest rise since its listing in 2005. Pork prices fell 0.4 percent in the week ended July 29 from the previous week, according to a statement by the Ministry of Commerce.

“The government has signaled it is preparing to sell state inventory” of corn to control prices, Shanghai JC Chairman Li Qiang said, citing discussions with feed mills.

Futures, Volatility

Futures on the Hang Seng Index retreated 0.8 percent to 19,634. The HSI Volatility Index (VHSI) gained 2.2 percent to 21.31, indicating traders expect a swing of about 6.1 percent in the benchmark index during the next 30 days.

Cheung Kong (Holdings) Ltd. (1), a Hong Kong property developer owned by Asia’s richest man Li Ka-shing, lost 1 percent to HK$102.40. The company is scheduled to report earnings after Hong Kong’s stock market closes today. Wharf Holdings Ltd., a developer that gets two-thirds of its revenue in Hong Kong, slid 2 percent to HK$44.60.

“Investors are quite wary,” said Peter Elston, Singapore- based head of Asia-Pacific strategy at Aberdeen Asset Management. The firm oversees about $270 billion. “We are still cautious about China. You look at the policy response to the weakness, it’s all about boosting investment, which is how China got into trouble in the first place.”

To contact the reporter on this story: Patrick Boehler in Hong Kong at pboehler@bloomberg.net

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

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