Hong Kong Swing Between Gains, Losses Amid China Concern

Hong Kong stocks swung between gains and losses after the city’s benchmark index yesterday rose to a four-month high and amid speculation China’s central bank may seek to control inflation rather than boost growth.

Aluminum Corp. of China Ltd., the country’s biggest maker of the metal, slipped 2.4 percent. Dongfeng Motor Group Co. led partners of Japanese carmakers lower, dropping 4.4 percent, amid rising tension between the two countries. Shandong Weigao Group Medical Polymer Co., a medical equipment maker, gained 4 percent as the Chinese government plans to boost funding for healthcare.

The Hang Seng Index fell 0.1 percent to 20,647.31 as of 11:35 a.m. local time, having swung between gains of 0.3 percent and losses of 0.2 percent. The gauge yesterday closed at its highest since May 4 after the Federal Reserve last week said it will buy mortgage-backed securities, undertaking a third round of quantitative easing, to boost U.S. growth.

“China probably won’t ease monetary policy at the moment,” said Castor Pang, head of research at Core-Pacific Yamaichi International Ltd. in Hong Kong. “Quantitative easing by the U.S. will drive commodity prices and that would increase inflation pressures in China.”

The Hang Seng China Enterprises Index of mainland companies slid 0.3 percent to 9,751.67. Difficulties facing China’s economy may continue for “a period of time” due to Europe’s sovereign debt crisis and weak U.S. economy, according to a commentary published by the official Xinhua News Agency. New home prices rose in fewer Chinese cities in August, adding to signs the nation’s economy is slowing down.

Relative Valuations

The Hang Seng Index traded at 10.9 times estimated earnings yesterday, compared with 9.5 for the Shanghai Composite Index and 14.1 for the Standard & Poor’s 500 Index. The Hong Kong gauge climbed 14 percent from this year’s low on June 4 through yesterday as central banks announced more measures to stimulate global economic growth.

Futures on the Hang Seng Index (HSI) lost 0.1 percent to 20,693 today. The HSI Volatility Index (VHSI) dropped 2.1 percent to 17.42, indicating traders expect a swing of 5 percent for the equity benchmark in the next 30 days.

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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