Hong Kong Stocks Fall as Growth Concerns Temper Wen

Hong Kong stocks fell as disappointing earnings underscored growth concerns even after after Chinese Premier Wen Jiabao said slowing inflation is giving more room for using monetary policy to support expansion.

China Mobile Ltd. dropped 5 percent, the most in a year, as the world’s No. 1 phone company by subscribers posted earnings that missed estimates. Tsingtao Brewery Co. (168) fell as slowing economic growth damped demand for beer produced by China’s second-largest brewer, eroding profit. Jiangxi Copper Co., China’s biggest producer of the metal, rose 1.6 percent after Wen’s comments.

The Hang Seng Index decreased 0.5 percent to 19,962.95 at the 4 p.m. close in Hong Kong, erasing a gain of as much as 0.5 percent, with two shares falling for each that climbed. The China-enterprises index of mainland companies’ Hong Kong-listed H shares slipped 0.4 percent to 9,741.78. Shares retreated after a report showed foreign direct investment in China dropped to the lowest in two years last month.

“The market has been expecting the Chinese government to do more to boost economic growth in the second half,” Benjamin Tam, who helps manage about $1.5 billion at IG Investment in Hong Kong, said in a phone interview. “Growth momentum has been pretty weak this year. The monetary easing has been offset by that weakness. The government needs to do more.”

The benchmark Hang Seng Index (HSI) fell 7.9 percent from this year’s high in February through today amid signs China’s slowdown is deepening and on concern Europe will struggle to contain its debt crisis. Shares on the gauge were valued at 10.5 times estimated earnings on average, compared with 13.6 for the S&P 500 Index and 11.6 for Stoxx Europe 600 Index.

Earnings Analysis

Of 60 companies on the Hang Seng Composite Index that have reported first-half earnings, and for which Bloomberg has estimates, 60 percent have exceeded projections. Earnings per share is expected to fall 3 percent this year.

China Mobile fell 5 percent to HK$86.85, the biggest drag on the Hang Seng Index. Second-quarter net income was unchanged at 34.4 billion yuan ($5.4 billion) from a year earlier, according to figures derived from first-half earnings reported to Hong Kong’s stock exchange today. Profit was projected at 35.6 billion yuan, according to the median of nine analysts’ estimates in a Bloomberg News survey.

“Most of the earnings result announcements are not too good, and there are a lot of profit warnings coming from mainland Chinese stocks,” said Kenny Tang, Hong Kong-based general manager of AMTD Financial Planning Ltd. “If the government further loosens monetary policy and cuts interest rates and the reserve requirement ratio, that should help the liquidity and the operating environment.”

Beer Sales

Tsingtao Brewery posted first-half profit that missed analysts’ estimates as slowing economic growth damped demand for beer produced by China’s second-largest brewer. The stock dropped 4.4 percent to HK$43.20, the lowest since April, as net income rose to 1 billion yuan, compared with the 1.13 billion yuan average of four analyst estimates compiled by Bloomberg.

Citic Pacific Ltd. (267), a steelmaker with a mine in Australia, fell 1.2 percent to HK$11.44 after reporting earnings during the trading break. Production at the Australian mine will be delayed, Chairman Chang Zhenming said.

“We have the conditions and capabilities, and will be sure to fulfill this year’s economic and social development targets,” Wen said during a two-day inspection tour to the eastern province of Zhejiang, the official Xinhua News Agency reported yesterday. He said downward pressure on the economy remained “relatively large,” according to state radio, and state television reported him as saying there’s “growing room for monetary policy operation.”

Futures, Volatility

Futures on the Hang Seng Index, which closed at its highest level since May 9 on Aug. 14, dropped 0.8 percent to 19,922. The HSI Volatility Index (VHSI) rose 1.2 percent to 19.07, indicating traders expect a swing of about 5.5 percent in the benchmark index during the next 30 days.

“Monetary easing is taking effect in China,” said Kiyoshi Ishigane, a Tokyo-based strategist at Mitsubishi UFJ Asset Management Co., which oversees about $70 billion. “Wen’s remarks are pushing it, and that’s a positive catalyst for the markets. The Premier seldom makes such direct remarks, but he might want to emphasize that government wants to support the economy by monetary policies.”

Jiangxi Copper climbed 1.6 percent to HK$18.36. Anhui Conch Cement Co. (914), the country’s biggest supplier of the building material, added 0.5 percent to HK$20.25.

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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