Hong Kong Stocks Drop as Europe a Catalyst for Selling

Hong Kong stocks dropped, with the city’s benchmark index falling to the lowest in almost four months, as HSBC Holdings Plc (HSBA) led declines among financial shares after Cyprus agreed to an unprecedented tax on bank deposits to fund a euro-zone bailout.

The Hang Seng Index slipped 2 percent to 22,083.36, the lowest close since Dec. 4. More than four shares fell for each that rose in the 50-member gauge. The Hang Seng China Enterprises Index (HSCEI) of mainland companies lost 2.1 percent. The measure fell 12 percent from a Feb. 1 high, entering a so-called correction, on heightened concern China will introduce more property curbs after home prices posted the broadest advance since December 2011.

HSBC, Europe’s biggest lender, slid 2.3 percent, the biggest decrease in a month. Tingyi (322) (Cayman Islands) Holding Corp., PepsiCo Inc.’s bottling partner in China, sank 3.8 percent after posting full-year profit that trailed estimates. Trading volume on the Hang Seng Index was 27 percent above the 30-day average, according to data compiled by Bloomberg.

“The inevitable bailout of Cyprus has come and that’s setting a precedent that isn’t great,” said Angus Gluskie, managing director at Sydney-based White Funds Management, which oversees more than $350 million. “Its financial impact is negligible but markets are reacting negatively because people have been looking for a reason to sell. The Chinese situation is a much more pertinent issue.”

Housing Curbs

The Hang Seng Index retreated 2.4 percent last week after inflation rose at the fastest pace in 10 months and People’s Bank of China Governor Zhou Xiaochuan said monetary policy is “no longer relaxed.”

The Hang Seng Property Index (HSP) fell 7.5 percent in the past five days after the city’s lenders increased mortgage rates and amid reports some of China’s biggest cities are doing more to curb property-price increases.

Hang Seng Index (HSI) futures slid 1.3 percent to 22,047. The HSI Volatility Index (VHSI) jumped 18 percent to 18.01, the most since July 23 and indicating traders expect a swing of 5.2 percent for the equity benchmark in the next 30 days.

The Hang Seng Index, the worst performing developed-market benchmark gauge this year outside of Italy, retreated 7.3 percent from a 21-month high on Jan. 30.

The benchmark equity measure traded at 10.7 times estimated earnings, compared with 14.1 for the Standard & Poor’s 500 Index and 12.8 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Cypriot Bailout

Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) to help fund a bailout by taking a piece of every bank account in Cyprus. The president delayed a vote on the measure in parliament until today, a day later than planned, as he seeks more time to persuade lawmakers to back him.

Companies that do business in Europe declined. HSBC (5) slid 2.3 percent to HK$84.15. Esprit Holdings Ltd. (330), a Hong Kong-based clothier that counts Europe as its biggest market, dropped 2.2 percent to HK$9.10. Li & Fung decreased 3.4 percent to HK$10.30.

China’s property developers extended losses as data showing rising new home prices fanned speculation the government will impose more property curbs.

“Fast-rising home prices have put the government under a lot of pressure,” said Ding Shuang, a senior China economist with Citigroup Inc. in Hong Kong. “We are expecting more property policies in the next couple of months.”

Developers Drop

Shimao Property Holdings Ltd. (813), controlled by billionaire Hui Wing Mao, slid 1.4 percent to HK$12.96. Guangzhou R&F Properties Co. lost 2.4 percent to HK$11.32. Agile Property Holdings Ltd. dropped 1.6 percent to HK$8.88.

China Overseas Land & Investment Ltd., the biggest Chinese developer by market value listed in Hong Kong, slipped 2.1 percent to HK$21.10, paring losses of as much as 4.2 percent. The company said during the midday break that 2012 profit climbed 21 percent on gains from property revaluations and the sales of stakes in some projects.

Midland Holdings Ltd., Hong Kong’s biggest realtor, plunged 4 percent to HK$3.38, after saying the city’s property brokers may cut as much as a third of their branches and agents if government curbs on home prices continue.

Cheung Kong (Holdings) Ltd., Hong Kong’s second-biggest real estate company by market value, fell 1.7 percent to HK$111.10. New World Development Co., the Hong Kong builder controlled by billionaire Cheng Yu-tung, slipped 1.7 percent to HK$13.04. Sino Land Co. dropped 3.8 percent to HK$12.68.

Challenging Environment

JPMorgan Chase & Co. reduced its recommendation on China’s shares to underweight from neutral. The nation’s policy environment is challenging amid slower growth and concern about inflation, Adrian Mowat, the investment bank’s Asia and emerging-market strategist, wrote in a report dated today.

Futures on the S&P 500 (SPX) fell 1 percent. The U.S. equity gauge last week rose to within two points of its record high as government data showed jobless claims unexpectedly dropped to the lowest level in almost two months.

Tingyi, which also makes instant noodles, dropped 3.8 percent to HK$19.96. The company reported a full-year net profit of $455 million, missing the average estimate of $530.6 million by 20 analysts tracked by Bloomberg.

China Resources Enterprise Ltd. (291), the government-backed partner of brewer SABMiller Plc, declined 3 percent to HK$23.90. The company is expected to report on March 21 a full-year adjusted net income of HK$1.88 billion ($242 million), according to the average estimate of 14 analysts tracked by Bloomberg. That compares with HK$2.83 billion in 2011.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; 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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