Hong Kong Stocks Fall on Economic Concerns, Europe Debt

Hong Kong stocks dropped, with the Hang Seng Index (HSI) falling for a second day, on concern China’s economic slowdown will deepen amid waning export demand as Europe’s leaders struggle to solve the region’s debt crisis.

Techtronic Industries Co. (669), the maker of Ryobi power tools that counts North America as its No. 1 market, fell 2.8 percent. Esprit Holdings Ltd., a Hong Kong-based clothier that gets about 79 percent of sales from Europe, slid 0.9 percent. China Resources Cement (1313) Holdings Ltd. decreased 5.9 percent after posting weaker first-half earnings.

The Hang Seng Index fell 0.3 percent to 20,081.36 at the close, having swung between gains of as much as 0.3 percent and losses of 0.5 percent. The gauge climbed 2.4 percent last week on speculation China will add to economic stimulus after export growth collapsed, industrial production unexpectedly slowed and inflation decelerated. The Hang Seng China Enterprises Index of mainland companies lost 0.9 percent to 9,814.59 today.

“The risk that third-quarter GDP growth being lower than the second quarter will be quite high,” said Terrace Chum, Hong Kong-based fund manager at Manulife Asset Management, which oversees $220 billion. “Investors expect some loosening of monetary policy in China and that’s why markets have been moving higher. Any action from China will likely be piecemeal.”

Disappointing Data

Following last week’s disappointing data, Bank of America cut its 2012 economic growth forecast for China to 7.7 percent from 8 percent. The bank also reduced its third quarter and fourth quarter growth estimates to 7.4 percent and 7.7 percent respectively, from 8 percent and 8.3 percent, according to a report from economist Ting Lu.

“Investors have been speculating China will add stimulus following last week’s disappointing data,” said Castor Pang, head of research at Core-Pacific Yamaichi International Ltd. in Hong Kong. “Policy makers will probably not do anything until they gather more data.”

Exporters declined. Techtronic sank 2.8 percent to HK$10.40. Yue Yuen Industrial Holdings Ltd. (551), the maker of shoes for Nike Inc. that gets about half of revenue from the U.S. and Europe, fell 1.9 percent to HK$23.10. Esprit fell 0.9 percent to HK$11.38.

Hong Kong’s government on Aug. 10 cut its estimate for the city’s expansion this year to between 1 percent to 2 percent from a previous forecast of 1 percent to 3 percent. The new forecast “is predicated on the assumption that Europe will continue to muddle through and the situation is largely contained,” government economist Helen Chan said at a briefing.

Europe Wrangling

Bond purchases by the European Central Bank won’t solve the difficulties of Spain and Italy in maintaining investor confidence, ECB Governing Council member Luc Coene said in an interview with Belgian newspapers De Tijd and L’Echo published Aug. 11.

Futures on the Standard & Poor’s 500 Index retreated 0.3 percent today. The gauge rose 0.2 percent on Aug. 10 after the San Francisco Chronicle reported that Federal Reserve Bank of San Francisco President John Williams said the lack of progress in reducing the unemployment rate and the slow economic recovery have convinced him it’s time to move ahead with a third round of asset purchases.

China Resources Cement dropped 5.9 percent to HK$3.96 after the supplier of the building materials reported a 69 percent drop in first-half net income to HK$635.2 million ($82 million).

The benchmark Hang Seng Index fell 7.4 percent from this year’s high in February through today, dragging the value of shares on the gauge to 10.6 times estimated earnings on average. That compares with 13.6 for the S&P 500 Index and 11.6 for Stoxx Europe 600 Index.

Chinese Brokerages

China’s biggest brokerages declined on concern earnings may disappoint as the stock market remains weak. Citic Securities Co. (6030), the nation’s largest-listed stock broker, slumped 7.3 percent to HK$13.44. Haitong Securities Co., the second- largest, dropped 4.4 percent to HK$9.50.

“Investors are worried that earnings will go downhill, and Chinese brokerages still rely a lot on stockbroking business,” said Zhang Yanbin, an analyst with Zheshang Securities Co. in Shanghai. “The economic fundamentals are not good so the outlook for the stock market is not optimistic.”

Futures on the Hang Seng Index lost 0.6 percent to 20,035. The HSI Volatility Index (VHSI) gained 1.7 percent to 18.70, indicating traders expect a swing of about 5.4 percent in the benchmark index during the next 30 days.

Land Auction

Among stocks that advanced, Cheung Kong (Holdings) Ltd. added 0.8 percent to HK$109.90. The developer controlled by billionaire Li Ka-shing paid HK$9.63 billion for a site atop Tsuen Wan West railway station in northwest Hong Kong, beating five other bidders. With 2.24 million square feet of buildable residential and commercial space, the project was expected to fetch HK$7 billion, according to the median estimate of five analysts surveyed by Bloomberg News.

The aggressive bid has spurred confidence in the outlook for property developers, Core-Pacific Yamaichi’s Pang said. Sun Hung Kai Properties Ltd. (16), Hong Kong’s second-largest developer, climbed 3 percent to HK$105. Henderson Land Development Co., the fourth-biggest real-estate company in the city rose 1 percent to HK$47.40.

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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