Most Hong Kong Stocks Fall Before China Inflation Report

Most Hong Kong stocks fell, with the city’s benchmark index headed for its first loss in three days, ahead of reports expected to show the world’s second-largest economy is slowing. Losses were limited on speculation slowing inflation may give more room for further monetary easing.

China Overseas Land & Investment Ltd. fell 2 percent, after a report that China can expand property controls if prices rebound. Shanghai Electric Group Co. paced gains among utilities after reporting a rise in profit. Cathay Pacific Airways Ltd. (293), Asia’s biggest international carrier, fell 4.3 percent after posting an unexpected first-half loss. Apparel retailer Esprit Holdings Ltd. (330) slumped 12 percent as Barclays Plc advised selling the shares after they rallied the most in 14 years yesterday.

The Hang Seng Index fell 7.03 points, or less than 0.1 percent to 20,065.52 as of the 4 p.m. close in Hong Kong after rising as much as 0.6 percent. About three stocks dropped for every two that rose on the broader Hang Seng Composite Index. The Hang Seng China Enterprises Index (HSCEI) of mainland companies climbed 0.2 percent to 9,867.76.

The economy is “slowing down, and that’s what the government wants because the economy at one stage was going too fast, causing inflationary pressures,” said Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees about $8 billion. “From low to cheap valuations, Asian equities are again in favor for foreign investors.”

The Hang Seng Index (HSI) rose 10 percent from this year’s low in June through today after Europe eased terms for banking bailouts and on optimism policy makers around the world will deploy more stimulus to spur growth. The value of shares on the gauge has risen to 10.6 times estimated earnings on average, compared with 13.6 for the Standard & Poor’s 500 Index and 11.6 for Stoxx Europe 600 Index.

China Inflation

Consumer prices in China may have risen 1.7 percent in July from a year earlier after climbing 2.2 percent in June, according to the median estimate of economists surveyed by Bloomberg before the government releases the data tomorrow. Reports on industrial production and retail sales are due the same day. A commentary in the Financial News said recent moderation in China’s inflation gives “bigger” room for monetary policy.

China Overseas Land & Investment slid 2.8 percent to HK$17.54. Country Garden Holdings Co. (2007), a real estate developer, dropped 0.7 percent to HK$3.00.

China will be able to expand property market controls if home prices rebound, Shanghai Securities News reported today, citing an unidentified ministry official.

Futures, Volatility

Futures on the Hang Seng Index fell less than 0.1 percent to 20,006. The HSI Volatility Index (VHSI) added 0.6 percent to 19.090, indicating traders expect a swing of about 5.5 percent in the benchmark index during the next 30 days.

Shanghai Electric advanced 4.6 percent to HK$3.40 after saying its first-half profit increased 67 percent from a year earlier to 305.6 million yuan ($48 million). China Power International Development Ltd. gained 3.4 percent to HK$2.12. Huaneng Power International Inc. advanced 1 percent to HK$5.13.

Esprit slumped 12 percent to HK$11.20 after Barclays analyst Vineet Sharma wrote in a note to clients that fundamentals surrounding the company haven’t changed. The stock yesterday had the biggest rally since 1998 after the clothier named a new chief executive officer.

Cathay Pacific Airways dropped 4.3 percent to HK$12.36 after posting a first-half loss of HK$935 million ($121 million), swinging from a profit of HK$2.8 billion a year earlier.

Futures on the S&P 500 fell 0.1 percent today. The gauge rose 0.5 percent yesterday amid better-than-expected U.S. corporate earnings. More than 70 percent of the S&P 500 companies which reported second-quarter results beat earnings estimates, data compiled by Bloomberg show.

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

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