Hong Kong Stocks in First Drop in Five Days as U.S. Data Awaited

Most Hong Kong stocks retreated as investors await U.S. economic data that may shed light on the timing of any reduction in Federal Reserve stimulus. Rail shares jumped after Premier Li Keqiang and the State Council agreed to speed up railway construction and reduce tax on small business.

The Hang Seng Index (HSI) slipped 0.1 percent to 21,941.12 at 9:33 a.m. in Hong Kong. About six stocks fell for every five that gained on the Hang Seng Composite Index. The Hang Seng China Enterprises Index of mainland shares was little changed at 9,790.55.

The Hang Seng Index is down 3 percent this year through yesterday, the second-worst performance among 24 developed markets tracked by Bloomberg, as shares slid on signs China’s growth is slowing and amid concern the Federal Reserve will taper its stimulus.

Premier Li said China will speed up railway construction in central and western parts of the country. China will set up a railway development fund, the State Council said after a meeting led by Li. Local governments and private investors will be allowed to own some city and regional railways.

Resolutions passed at yesterday’s cabinet meeting included the exemption of companies with monthly sales of less than 20,000 yuan from value-added and business taxes starting Aug. 1, according to the statement. China will also reduce administrative fees on export inspections and encourage financing and tax-rebate services for small firms to promote trade, according to yesterday’s statement.

Yesterday’s Move

The city’s benchmark gauge rose 0.2 percent yesterday as railway companies and banks increased, tempering a worse-than-expected preliminary manufacturing survey from HSBC Holdings Plc and Markit Economics. The Hang Seng Index traded at 10.5 times estimated earnings yesterday, compared with 15.3 times for the Standard & Poor’s 500 Index and 13.5 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

China’s “bottom line” for gross domestic product growth is 7 percent and the nation can’t let growth go below that, Premier Li Keqiang said in a meeting with economists and businesspeople, according to a July 23 Beijing News report.

Materials and energy companies led declines this year on the Hang Seng Composite on concern demand will weaken amid slower growth in China’s economy. Gauges of information technology, utilities and services were the only measures that rose among the index’s 11 industry groups.

The Hang Seng China Enterprises Index, also known as the H-share index, fell as much as 27 percent from a Feb. 1 high, meeting some investors’ definition of a bear market. The measure, which has since rebounded 10 percent, traded at 1.18 times the value of net assets yesterday, 34 percent lower than it five-year average of 1.78.

U.S. Futures

Futures on the S&P 500 were little changed today. The U.S. equity benchmark yesterday capped its first two-day decline in a month after the Chinese manufacturing report. The gauge earlier climbed within 3 points of 1,700 for a third straight day.

Hang Seng Index futures retreated 0.1 percent to 21,936. The HSI Volatility Index increased 0.6 percent to 17.62, indicating traders expect a swing of 5.1 percent for the equity benchmark in the next 30 days.

To contact the reporter on this story: Emma Bi in Hong Kong at ebi4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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