Hong Kong stocks fell for a third day after China’s government raised fuel prices and as a Federal Reserve board member warned the U.S. economy isn’t “out of the woods.” Sun Hung Kai Properties Ltd. dropped after a director was arrested as part of a bribery investigation.
Li & Fung Ltd., the biggest supplier to Wal-Mart Stores Inc., dropped 2.4 percent after New York Fed President William C. Dudley said signs the economy is improving don’t dispel risks to growth. Belle International Holdings Ltd., a women’s show retailer, dropped on concern higher fuel prices will further dent growth in the China. Sun Hung Kai, the world’s No. 1 developer by market value, slid 2.4 percent after Executive Director Thomas Chan Kui-Yuen’s arrest by the city’s Independent Commission Against Corruption.
“The overall market is going into a correction” after recent gains, and property stocks will limit the upside, said Linus Yip, a strategist at First Shanghai Securities. Costs for manufacturers and retailers are rising, adding pressure to their corporate earnings outlook, he said. “I don’t think it will be a free-fall. Compared to the third quarter last year, Europe’s systemic risk is reduced. The global macro environment is more stable now.”
The Hang Seng Index fell 1.1 percent to 20,888.24, its lowest close since March 7. Volume was about 3.8 percent more than the 30-day intraday average. The Hang Seng China Enterprises Index of mainland companies listed in the city slid 1.5 percent to 10,870.61.
Futures on the Hang Seng Index expiring this month dropped 0.5 percent to 20,887. The HSI Volatility Index rose 3.3 percent to 21.52, indicating options traders expect a swing of about 6.2 percent in the benchmark index over the next 30 days.
The Hang Seng Index rose 15 percent this year through yesterday amid signs the U.S. economy is improving and as China reduced curbs on bank lending. The advance has boosted the price of shares on the gauge to 10.7 times estimated earnings. That compares with 13.5 times for the S&P 500 Index and 11.4 times for the Stoxx Europe 600 Index.
Dudley’s comments elaborated on a March 13 statement by the Federal Open Market Committee, which noted that unemployment has declined while remaining “elevated.” Dudley, FOMC vice chairman, said the economy has shown signs of strength partly because of inventory building and unseasonably warm weather.
“The incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established,” Dudley said in a speech in Melville, New York. “But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery.”
Li & Fung dropped 2.4 percent to HK$18.92. Man Wah Holdings Ltd., a sofa maker that counts the U.S. as its largest market, dropped 4 percent to HK$5.54.
China, the world’s largest oil consumer after the U.S., increased gasoline and diesel prices for the second time in less than six weeks after crude had its biggest monthly gain in a year.
Prices will increase by 600 yuan ($95) a metric ton starting today, after the three crude grades tracked by the National Development and Reform Commission climbed more than 10 percent, according to a statement on the planning agency’s website yesterday.
‘Slowing Even Further’
“Higher energy costs and falling profits may worry investors that the economy is slowing even further,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. in Shanghai.
China Cosco Holdings Co., a Chinese container shipping line, fell 5.6 percent to HK$4.57, the biggest decline on the Hang Seng China Enterprises Index. Emerging market and Asian transport stocks were cut to underweight yesterday at Morgan Stanley because of rising oil prices. BYD Co., a maker of electric vehicles that’s partially owned by billionaire Warren Buffett, climbed 0.7 percent to HK$21.20.
Belle International Holdings Ltd. dropped 0.7 percent to HK$13.54. The company will announce earnings today. Esprit Holdings Ltd., a clothier that’s aiming to build its market share in China, slipped 1.6 percent to HK$15.90.
Of the 116 companies on the Hang Seng Composite Index that have reported full-year earnings since January, 56 percent have exceeded analysts’ estimates, according to data compiled by Bloomberg. Health-care and basic materials companies recorded the biggest increases in earnings per share, while industrial companies were the only ones among 10 industries to report a decrease.
Hong Kong & China Gas Co. rose 2.2 percent to HK$20, its highest level in at least 26 years, after reporting profit that beat analyst estimates.
Sun Hung Kai slipped 2.4 percent to HK$113. Chan’s arrest will not affect the group’s normal business operations, the company said in a statement to the Hong Kong Stock Exchange yesterday. Sun Hung Kai set up a committee comprised of three board members to handle the commission’s investigation.
China Telecom Corp., the country’s biggest fixed-line carrier, slid 3.1 percent to HK$4.36 after its fourth-quarter profit missed analysts’ estimates because of costs to add mobile subscribers.
Shangri-La Asia Ltd., a Hong Kong-based hotel operator, slumped 7.8 percent to HK$17.06 after saying its net income for the year ended Dec. 31 fell to $253 million from $287 million a year earlier.