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Hong Kong Stocks Drop Third Day Amid Overheating Signals

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Jan. 8 (Bloomberg) -- Hong Kong stocks fell, with the city’s benchmark index retreating for a third day from a 19-month high, as developers and insurance companies dropped amid signs the market may be overbought.

China Resources Land Ltd. sank 2.7 percent, the developer’s first decline in two weeks. China Pacific Insurance Group Co. dropped 2.6 percent after Carlyle Group LP sold its remaining stake in the insurer. Cnooc Ltd. slid a second day after sending icebreakers to clear offshore oilfields amid the coldest winter in decades. Zoomlion Heavy Industry Science & Technology Co. was suspending after the Ming Pao newspaper cited an anonymous letter questioning the crane maker’s accounting.

The Hang Seng Index sank 0.9 percent to 23,111.19 at the close in Hong Kong. The measure has retreated 1.2 percent in the three days after reaching its highest level since June 2011. The Hang Seng China Enterprises Index of mainland companies declined 2.2 percent to 11,714.15.

“People are taking profits,” said Tim Leung, a portfolio manager who helps oversee about $1.5 billion at IG Investment Ltd. in Hong Kong. “Especially the financials -- the real estate and the insurance companies -- are seeing a bit of a correction. There’s been a lot of extended optimism priced into stocks recently.”

The Hang Seng Index has advanced about 11 percent from the end of September as signs of accelerating growth in China lured money made available by global central-bank easing. The gauge traded at 11.3 times estimated earnings on average, compared with 13.2 for the Standard & Poor’s 500 Index and 10.9 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Overheating Signal

The Hang Seng Index’s 14-day Relative Strength Index, a measure of trading momentum, was at 74 yesterday, above the 70-level that some investors view as indicating an asset is overbought.

Gauges tracking developers and financial stocks, including life insurance companies, fell the most among the four industry groups on the Hang Seng Index, with the 14-day RSI for both measures above the overheating threshold yesterday.

China Resources Land sank 2.7 percent to HK$23.05, dropping for the first time since Dec. 24. China Overseas land & Investment Ltd. declined 1.4 percent to HK$24.95.

China Pacific Insurance Group declined 2.6 percent to HK$30.20. Carlyle Group raised about $796 million from the sale of its remaining shares in the insurer, according to a document obtained by Bloomberg News.

China Life Insurance Co. fell 3.3 percent to HK$26.30 after CCB International Holdings Ltd. cut its rating on the nation’s largest insurer. The RSI on the shares rose yesterday to 82, the highest level since 2007.

Icy Oilfields

Cnooc dropped 1.8 percent to HK$16.84, leading a decline by energy companies. The oil explorer sent icebreakers to clear frozen oilfields in Bohai Bay off the coast of northeast China, it said in a Jan. 5 statement on its website. China is experiencing the coldest winter in 28 years, according to the China Meteorological Administration.

Among companies that rose, Chinese food manufacturers gained. Tingyi Holdings Co., a maker of instant noodles, added 4.2 percent to HK$21. Want Want China Holdings Ltd., a snackfood maker and wheat processor, gained 2.6 percent to HK$10.44.

Zoomlion Heavy Industry shares were suspended from trading after Ming Pao Daily said it received an anonymous letter questioning the company’s sales. The maker of construction equipment plans to issue a clarification today, company Secretary Shen Ke said in a phone interview today.

The HSI Volatility Index sank 2.7 percent to 14.49, indicating traders expect a swing of 4.2 percent for the equity benchmark in the next 30 days. Futures on the Hang Seng Index slipped 0.8 percent to 23,152.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

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

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