Hong Kong Stocks Retreat as China Opens After Holiday

Hong Kong stocks fell, with the city’s benchmark equities declining for the first time in six days, as China’s markets reopened after a week-long break.

ZTE Corp. (000063), a Chinese phone-equipment maker, slumped 6 percent after a draft U.S. congressional report said the company poses a security threat. SIM Technology Group Ltd. (2000), a mobile- handset designer, tumbled 23 percent after saying it plans to raise as much as HK$175.7 million ($22.7 million). Yue Yuen Industrial Holdings Ltd. (551), which makes shoes for Nike Inc., climbed as much as 3 percent after the U.S. unemployment rate dropped. China Southern Airlines Co. paced gains among airlines after the number of passengers rose in China during the holidays.

The Hang Seng Index (HSI) declined 0.9 percent to 20,824.56 at the close, with almost four stocks falling for each that gained. The city’s benchmark stock index rose 2.4 percent in the five days through Oct. 5. The Hang Seng China Enterprises Index of mainland companies, also known as the H-share index, slid 1.3 percent to 9,839.84.

“It looks like the U.S. is going through a recovery and things are quite strong there, China is the wobbly leg and Europe’s another wobbly leg and so it’s two out of three that are providing a little bit of uncertainty,” said Marco Li, Hong Kong-based portfolio manager at Manulife Asset Management, which oversees $218 billion globally. “For the rally to continue you need a little bit more firming of the two wobbly legs.”

Volume on Hang Seng Index was 11 percent below the 30-day average for the time of day, according to data compiled by Bloomberg.

Central Banks

The Hong Kong equity benchmark index rose 14 percent this year through Oct. 5 as central banks from the U.S., Europe and China announced measures to boost their economies. The Hang Seng Index traded at 11.1 times estimated earnings on average on Oct. 5, compared with 13.9 times for the Standard & Poor’s 500 Index and 12.2 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

European finance ministers will meet in Luxembourg today, while German Chancellor Angela Merkel visits Greece tomorrow for the first time since the crisis erupted. Spanish Prime Minister Mariano Rajoy travels on Oct. 10 for talks with French President Francois Hollande in Paris. German data today may show industrial production and exports fell.

ZTE slumped 6 percent to HK$12.60. The company and Huawei Technologies Co., China’s two largest phone-equipment makers, provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying, according to a congressional report to be released today.

‘State Influence’

“Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems,” says the House intelligence committee report.

Executives for Huawei and ZTE, both based in Shenzhen, China, denied links to Chinese espionage at an intelligence committee hearing last month, telling lawmakers they aren’t controlled by the Chinese government.

SIM Technology tumbled 23 percent to 34.5 Hong Kong cents. The company plans to raise capital through rights offering of one new share for every two existing shares, the company said in a statement to the city’s bourse on Oct. 5.

China Overseas Land & Investment Ltd. (688), the biggest Hong Kong-listed mainland developer by value, slid 3 percent to HK$19.20 while state-owned China Resources Land Ltd. fell 3.4 percent to HK$16.56. Macquarie Securities Ltd. cut its rating on China’s property sector to equalweight from overweight, citing strong gains in the past year and delayed policy relaxation expectations.

U.S. Futures

China’s new home prices in September climbed 0.17 percent from August to 8,753 yuan ($1,393) per square meter (10.76 square feet), SouFun Holdings Ltd., the country’s biggest real- estate website owner said in an e-mailed statement today, based on its survey of 100 cities. The central government has pledged it won’t waver from policies aimed at suppressing property-price gains.

Futures on the Standard & Poor’s 500 Index fell 0.4 percent today. The gauge closed little changed Oct. 5 as Apple Inc., the world’s largest company by market value, slumped. U.S. unemployment rate unexpectedly fell to 7.8 percent in September, a Labor Department report showed, the lowest since President Barack Obama took office in January 2009, as employers took on more part-time workers.

Airlines Climb

Yue Yuen gained 0.6 percent to HK$26.60, while Li & Fung Ltd. (494), a supplier of toys and clothes that counts the U.S. as its top market, climbed as much as 1.8 percent before closing 0.3 percent higher at HK$12.08.

Among other stocks that rose, China Southern Airlines, Asia’s biggest carrier by passenger numbers, rose 3.9 percent to HK$3.69 and China Eastern Airlines Corp. advanced 1.6 percent to HK$2.54.

The number of passengers rose 27 percent during the Sept. 30 to Oct. 7 holiday from the comparable period a year earlier, according to a statement on Civil Aviation Administration’s website yesterday.

Futures on the Hang Seng Index fell 0.9 percent to 20,782. The HSI Volatility Index (VHSI) climbed 2.7 percent to 16.47, indicating traders expect a swing of 4.7 percent for the equity benchmark in the next 30 days.

To contact the reporter on this story: 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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