Hong Kong Stocks Decline Before U.S., China Economic Data

Hong Kong stocks fell, with the benchmark index capping its biggest weekly drop in a year, before the release of U.S. jobs data that may give guidance on Federal Reserve stimulus plans. Shares also dropped ahead of China’s inflation and trade reports.

Financials led declines on the Hang Seng Composite Index. Bank of China Ltd., the nation’s fourth-largest lender by market value, lost 2 percent as money-market rates jumped. Cheung Kong (Holdings) Ltd. (1), the second-biggest builder in Hong Kong, slumped 1.8 percent as the city’s property companies extended their drop. Cathay Pacific Airways Ltd. (293), Asia’s No. 1 international carrier, fell 3.5 percent on prospects for more competition, bringing this week’s decline to 5.7 percent.

The Hang Seng Index (HSI) dropped 1.2 percent to 21,575.26 at the close, with six stocks declining for each that gained. The gauge fell 3.7 percent for the week, its biggest such drop since May. Trading volume was 13 percent higher than the 30-day average. The Hang Seng China Enterprises Index (HSCEI) of mainland companies slid 1.7 percent to 10,187.27, its lowest close since October. China’s markets will be shut through June 12 for the Dragon Boat Festival.

“Everybody’s waiting for the U.S. jobs data, as that’s one of the factors that gives some guidance to the near-term economic direction and the potential reaction from the Fed,” said Yoji Takeda, head of the Asian equity management team at RBC Investment (Asia) Ltd., which oversees $1.5 billion. “The consensus is that China’s growth is gradually slowing. The market needs to see some kind of government action to revive sentiment.”

Growth Concern

The Hang Seng Index slumped 4.8 percent this year, the worst performer among major developed markets, amid signs China’s economy is losing steam and concern the Fed will begin to draw down stimulus. Hong Kong’s benchmark equity gauge traded at 10.3 times estimated earnings, below its five-year average of 12.6, according to data compiled by Bloomberg.

Futures on the Standard & Poor’s 500 Index (SPX) were little changed. The gauge climbed 0.9 percent yesterday as investors weighed the Fed’s stimulus plans before a report on employment growth today. The U.S. Labor Department is expecting employers to have added 163,000 to non-farm payrolls last month, compared with 165,000 in April, based on analysts surveyed by Bloomberg.

Hong Kong’s developers declined on speculation U.S. interest rates may rise. With the city’s currency pegged to the dollar, Fed decisions largely determine local rates.

Developers Drop

Cheung Kong fell 1.8 percent to HK$103.90. Sino Land Co., a Hong Kong builder controlled by billionaire Robert Ng, dropped 1.2 percent to HK$11.18.

“The Hong Kong market is very sensitive to U.S. interest rates historically and property prices are already at high levels so that’s always a destabilizing factor,” RBC’s Takeda said.

China’s customs administration will release May trade data tomorrow. Exports may have grown 7.4 percent from a year earlier, half April’s reported 14.7 percent, based on the median estimate in a Bloomberg survey of economists. On June 9, the statistics bureau will release May industrial-output, retail and inflation data.

A measure of financial stocks had the biggest drop among the Hang Seng Composite’s 11 industry groups. Bank of China slumped 2 percent to HK$3.36. China Minsheng Banking Corp., the nation’s first non-state lender, fell 1 percent to HK$8.97. People’s Insurance Company (Group) of China Ltd., parent of the nation’s biggest non-life insurer, slid 5.7 percent to a record low of HK$3.61.

Foreign Capital

China’s overnight money-market rate climbed to a 16-month high on speculation a cash shortage will worsen. The one-day repurchase rate climbed as much as 2.3 percentage points to 8.45 percent in Shanghai.

“Foreign capital inflows are probably declining,” said Wang Huane, a senior bond trader at Qilu Bank Co. in Jinan, capital of the eastern Shandong province. “The People’s Bank of China has refrained from adding more capital into the financial system, which worsens the situation.”

Cathay Pacific slumped 3.5 percent to HK$13.66, the steepest drop on the Hang Seng Index. The stock capped its largest weekly slide in more than two months after billionaire Stanley Ho this week agreed to invest in Jetstar Hong Kong Airways Ltd., increasing chances the budget carrier will win an operating license and compete with Cathay.

Futures on the Hang Seng Index declined 1 percent to 21,353. The HSI Volatility Index climbed 5.7 percent to 19.38, the highest since September, indicating traders expect a swing of 5.6 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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