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Hong Kong Stocks Slump as China PMI Misses Estimates

Hong Kong stocks slumped, with indexes tracking equities in the city and the mainland dropping to one-month lows, as a private-sector gauge of China’s manufacturing missed estimates and holiday home sales declined.

China Overseas Land & Investment Ltd. (688) fell 1.7 percent as a report showed new home sales in the nation tumbled to a four-year low during the May Day holiday. Chow Sang Sang Holdings International Ltd., a seller of jewelry, slid 1.5 percent after Hong Kong’s retail sales unexpectedly declined in March. Hutchison Whampoa Ltd. (13) and Cheung Kong Holdings Ltd. (1) were the biggest drags on the Hang Seng Index as the companies controlled by Asia’s richest man Li Ka-shing went ex-dividend.

The Hang Seng Index dropped 1.3 percent to 21,976.33 at the close in Hong Kong, the lowest since March 27, with about nine shares declining for each that rose. The Hang Seng China Enterprises Index (HSCEI) of mainland shares traded in the city, also known as the H-share index, fell 0.6 percent to 9,743.29, the lowest close since March 25.

“There’s a big risk of a deeper economic slowdown in China given the continued weakening in the manufacturing sector,” Jackson Wong, vice president at Tanrich Securities Co. in Hong Kong, said by phone. “Rebalancing the economy is a challenge for the government. The market doesn’t know what the government intends to do.”

The final reading of HSBC Holdings Plc and Markit Economics’ China Purchasing Managers’ Index was 48.1 in April, from 48 in March, signaling a fourth month of contraction. The preliminary reading was 48.3 and economists had projected a final level of 48.4.

Slowing Growth

The Hang Seng Index fell 5.7 percent this year and the H-share gauge sank 9.9 percent amid mounting concern China won’t meet its 7.5 percent target for economic growth. Premier Li Keqiang is trying to avoid a deeper slowdown after property construction plunged in the first quarter.

Economists expect China’s gross domestic product will expand 7.3 percent this year, the weakest pace since 1990, as authorities rein in credit. The nation’s official manufacturing Purchasing Managers’ Index for April came in at 50.4 last week, missing forecasts for a 50.5 reading, while remaining above the 50 level that divides expansion and contraction.

A separate services-industry gauge rose to 54.8 last month from 54.5 in March, the National Bureau of Statistics and the Federation of Logistics and Purchasing said in Beijing on May 3.

Weak Momentum

“The economy is suffering from relatively weak growth momentum,” Yao Wei, a Hong Kong-based China economist at Societe Generale SA, said on Bloomberg Television. “It’s a structural problem. The economy will remain weak and the deceleration is not over yet.”

The Hang Seng Index (HSI) traded at 10.2 times estimated earnings today, compared with 16 for the Standard & Poor’s 500 Index on May 2.

Futures on the S&P 500 were little changed today. The U.S. equity benchmark index lost 0.1 percent on May 2 as concern about escalating tension in Ukraine overshadowed data showing payrolls rose the most in two years.

Employers added 288,000 jobs in April, the Labor Department reported May 2. The median forecast in a Bloomberg survey of 94 economists called for a 218,000 increase. Unemployment dropped from 6.7 percent to the lowest level since September 2008.

At the same time, more than 800,000 people abandoned the labor force and the share of working-age Americans in a job or looking for one fell to a 36-year low.

Developers, Retailers

Chinese developers declined amid growing concern the nation’s housing market is cooling. Home sales during the May Day holiday last week dropped 47 percent to a four-year low from a year earlier, China Business News reported, citing Centaline Shenzhen. Market sentiment is “not optimistic,” with developers focusing on sales volumes due to cash-flow pressure, according to Centaline.

China Overseas Land dropped 1.7 percent to HK$18.58. China Resources Land Ltd. fell 1.6 percent to HK$15.60. Country Garden Holdings Co. (2007), controlled by billionaire Yang Huiyan, sank 2.3 percent to HK$3.04.

“Property prices will correct this year in China,” Gao Jian, an analyst at Northeast Securities Co., said by phone from Shanghai. “Sales volume is retreating. I don’t see a suitable entry point for property stocks for now.”

Hong Kong retailers slid after government data on May 2 showed the city’s retail sales by value fell 1.3 percent in March from a year earlier, missing the median estimate of a 7.4 percent increase by economists in a Bloomberg survey.

Chow Sang Sang slipped 1.5 percent to HK$18.72. Wharf (Holdings) Ltd., the owner of Times Square and Harbour City shopping malls, dropped 3.1 percent to HK$52.65. Luk Fook Holdings (International) Ltd., which sells jewelry, slipped 3.3 percent to HK$20.80.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net John McCluskey

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