Hong Kong stocks fell after Moody’s Investors Service cut the European Union’s economic outlook and Societe Generale SA predicted weaker Chinese growth, which fueled speculation of more government stimulus.
Mainland companies retreated after Goldman Sachs Group Inc. lowered earnings forecasts for publicly-traded companies in the MSCI China Index. Li & Fung (494) Ltd., a supplier of clothes and toys to retailers that gets more than 80 percent of sales from abroad, fell 2.8 percent. Mongolia Energy Corp. (276), a mineral and energy explorer, slumped 4.5 percent after saying it expects a first-half loss. Yashili International Holdings Ltd. (1230) gained 3.3 percent after a report the dairy products producer may be an acquisition target.
The Hang Seng Index (HSI) slid 0.3 percent to 19,507.99 as of 1:23 p.m. local time. The gauge has fallen five of the last seven trading days. Volume was 14 percent below its 30-day average for the time of day. The Hang Seng China Enterprises Index of mainland companies dropped 0.6 percent to 9,233.32.
“Investors are waiting for further clues for monetary easing from Europe, the U.S. and China, and that’s keeping them on the sidelines,” said Ben Kwong, chief operating officer at KGI Asia Ltd., a Hong Kong-based brokerage. Central banks will probably introduce stimulus measures, but “whether they will be sufficient enough to satisfy investor expectation is another thing.”
The Hang Seng Index traded at 10.4 times estimated earnings on average yesterday, compared with 9.3 for the Shanghai Composite Index and 13.6 for the Standard & Poor’s 500 Index. (SPXL1) The Hong Kong gauge climbed 7.6 percent from this year’s low on June 4 through yesterday on optimism central banks will ease monetary policy to boost slowing global economic growth.
Futures on the Standard & Poor’s 500 Index gained 0.1 percent today, with the equity market set to reopen after yesterday’s holiday.
Moody’s lowered the outlook on the EU’s Aaa long-term bond rating from stable, citing the risks to Germany, France, the U.K. and the Netherlands that account for about 45 percent of the group’s budget revenue.
While China will avoid a full-blown hard landing, a shift to a new consumer-led growth model will see a structurally weaker growth outlook, according to a report from Societe Generale. The brokerage lowered its forecast for China’s real gross domestic growth to 7.7 percent from 8.1 percent for 2012 and to 7.4 percent from 7.7 percent for 2013.
Profits for companies in the MSCI China Index (MXCN) may increase 1.8 percent this year and 8.6 percent in 2013, compared with previous growth estimates of 6 percent and 12.3 percent, Goldman analysts Helen Zhu and Timothy Moe wrote in a report dated yesterday. In a separate report, Citigroup Inc. said earnings may rebound in the second half of the year as the government further loosens policies.
Li & Fung retreated 2.8 percent to HK$11.94. The company’s mergers and acquisitions may not be enough to offset a slowdown in “organic” growth as it becomes more dependent on the U.S. and Europe, Michelle Cheng, an analyst at BNP Paribas SA, wrote in a report, rating the stock reduce in new coverage.
Mongolia Energy slumped 4.5 percent to 32 Hong Kong cents after saying it expects a “substantial” loss for the interim period ending Sept. 30 because of lower prices of coking coal and a sluggish market in China.
Yashili International rose 3.3 percent to HK$1.55. The company and Biostime (1112) International Holdings Ltd. are potential targets for acquisition by Mead Johnson Nutrition Co. and Abbott Laboratories, Hong Kong’s Sharp Daily reported, citing unidentified people. Biostime climbed 3.6 percent to HK$19.58.
Futures on the Hang Seng Index were little changed at 19,415. The HSI Volatility Index (VHSI) slid 1.5 percent to 20.18, indicating traders expect a swing of 5.8 percent for the equity benchmark in the next 30 days.
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