Hong Kong Stocks Fall on China Manufacturing, Euro Summit

Hong Kong stocks fell, with the Hang Seng Index heading for its first decline in three days, on concern China’s manufacturing slump is deepening and as European leaders disagreed before a summit on the debt crisis.

Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, slid 1.7 percent ahead of the release of data this weekend expected to show China’s manufacturing is still contracting. China Yurun Food Group Ltd. plunged 13 percent on speculation first-half earnings may disappoint as utilization levels at the meat supplier’s facilities remain low. Hutchison Whampoa Ltd., which operates ports in Germany and Spain, slipped 1.7 percent.

The Hang Seng Index slipped 0.8 percent to 19,025.27 at the close, erasing gains of as much as 0.7 percent. Volume was 11 percent below the 30-day average for the time of day, according to data compiled by Bloomberg. The measure retreated about 12 percent from this year’s high in February amid concern growth in the U.S. and China is slowing as Europe’s debt crisis spreads.

“Market sentiment is still very poor,” said Lewis Wan, chief investment officer at Pride Investments Group Ltd. in Hong Kong. “There’s a lack of confidence ahead of the European summit.”

Stocks in Hong Kong climbed yesterday after China announced plans to increase integration between the city and mainland markets ahead of a visit by President Hu Jintao this weekend. July 1 marks the 15th anniversary of Hong Kong’s return to Chinese rule.

‘Heartbreak Level’

The Hang Seng China Enterprises Index dropped 1.3 percent to 9,336.38 today, extending losses after the Shanghai Composite Index closed 1 percent lower, erasing gains for the year.

“The Shanghai Composite Index fell below 2,200, which is a heartbreak level,” said Francis Lun, managing director at Lyncean Holdings Ltd., a Hong Kong-based brokerage. “It broke the heart of investors.”

Chinese lenders declined ahead of the release of manufacturing data on July 1. The Purchasing Managers’ Index compiled by the statistics bureau and logistics federation may drop to 49.8 in June, falling below the dividing line of 50 for expansion and contraction, according to the median estimate of 19 economists in a Bloomberg survey.

ICBC, as China’s No. 1 bank is known, slipped 1.7 percent to HK$4.18. Agricultural Bank of China Ltd., the third-biggest lender, fell 1.3 percent to HK$2.98. China Construction Bank Corp., the second-largest lender, lost 1.5 percent to HK$5.15.

China Yurun Food sank 13 percent to HK$6.51, the most since 2006. Investors should find a better entry point even after the stock slumped 36 percent this year as capacity utilization will remain at about 50 percent this year, Sean Zhang, an analyst at SWS Research, wrote in a note to clients. Company, whose net income dropped 34 percent in 2011, said it will release a statement today.

Euro Summit

Europe’s leaders will meet today in Brussels amid a breakdown in consensus on how to safeguard Spain and Italy from surging borrowing costs. French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for the creation of euro-area bonds, which German Chancellor Angela Merkel has rejected.

Companies that do business in Europe fell. Hutchison Whmapoa slipped 1.7 percent to HK$65. Foxconn International Holdings Ltd., an electronics manufacturing services provider that counts Nokia Oyj as its biggest customer, fell 2.4 percent to HK$2.80.

The value of stocks on the Hang Seng has fallen to 9.9 times estimated earnings on average as of yesterday, compared with 12.8 times for the S&P 500 and 10.3 times for the Stoxx Europe 600 Index

Futures on Hong Kong’s benchmark stock index expiring this month gained 0.1 percent to 19,179. The HSI Volatility Index jumped 5.5 percent to 22.21, indicating options traders expect a swing of about 6.4 percent on the gauge during the next 30 days.

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