Hong Kong Stocks Fall for First Week in Five on U.S. Budget Risk

Dec. 21 (Bloomberg) -- Hong Kong stocks fell, with the benchmark index capping its first weekly drop in five, amid weakening optimism U.S. budget negotiations will succeed after House Republican leaders canceled a vote on one proposal.

Techtronic Industries Co., a maker of power tools that counts North America as its biggest market, sank 1.3 percent. Gold producer Zhaojin Mining Industry Co. sank 3.7 percent after the precious metal’s price declined. Ju Teng International Holdings Ltd., a maker of notebook computer casings, gained 5.1 percent after saying it expects an increase in full-year profit.

The Hang Seng Index slid 0.7 percent to 22,506.29, its steepest decline since Dec. 3 and a 0.4 percent drop for the week. Three stocks fell for each that advanced on the 50-company measure, with volume 21 percent greater than the 30-day average, according to data compiled by Bloomberg. The Hang Seng China Enterprises Index of mainland companies sank 1.1 percent to 11,229.09.

“Hong Kong market is suffering from profit-taking,” said Francis Lun, Hong-Kong based managing director at Lyncean Securities Ltd. “Americans are not close to getting the U.S. fiscal cliff deal done, so let the apocalypse come. It’s a short-term correction, and it won’t be very deep because Hong Kong is still flooded with a lot of cash.”

‘Hot Money’

Hong Kong’s benchmark index advanced 23 percent this year through yesterday as central banks from Europe, the U.S. and Japan announced stimulus, and so-called “hot money” entered the city amid optimism China’s economy is bottoming out. Hong Kong’s de facto central bank intervened in October for the first time since 2009 to defend the local currency’s peg to the U.S. dollar as investors poured money into the city.

Shares on the measure traded at 11.9 times average estimated earnings yesterday, compared with 13.9 for the Standard & Poor’s 500 Index and 12.8 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Futures on the S&P 500 index fell 1.2 percent today after the gauge gained 0.6 percent yesterday. House Republican leaders canceled a planned vote on Speaker John Boehner’s plan to allow higher tax rates for annual income above $1 million amid stalled budget talks.

Fewer than two weeks remain to avert the so-called fiscal cliff, more than $600 billion in automatic spending cuts and tax increases to take effect in January. The Congressional Budget Office has said that a failure to avert those changes would probably lead to a recession in the first half of 2013.

‘Cutting It Close’

“It’s cutting it quite close,” said Shane Oliver, Sydney-based head of strategy at AMP Capital Investors Ltd., which has almost $130 billion under management. “If they go off the fiscal cliff, the U.S. economy could go into a recession. At stake is the U.S. economy and by implications the global economy.”

Techtronic fell 1.3 percent to HK$14.72, while Li & Fung Ltd., a supplier of toys and clothes to Wal-Mart Stores Inc., sank 1 percent to HK$13.48.

Zhaojin Mining sank 3.7 percent to HK$11.92, and Zijin Mining Group Co., China’s biggest gold miner by market value, slid 3.6 percent to HK$2.96 after spot gold fell as much as 0.7 percent today.

A measure of financial shares had the biggest drop among the Hang Seng Index’s four industry groups. Industrial & Commercial Bank of China Ltd., the world’s biggest lender, declined 2.1 percent to HK$5.48 and China Construction Bank Corp. retreated 1.9 percent to HK$6.14 after they reached their highest close since March this week.

Among stocks that rose, Ju Teng advanced 5.1 percent to HK$3.52 after saying it expects a “significant increase” in profit for the year ending Dec. 31.

Futures on the Hang Seng Index retreated 0.7 percent to 22,465. The HSI Volatility Index jumped 7.3 percent to 16.82, indicating traders expect a swing of 4.8 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