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Hong Kong Stocks Fall Most in Seven Weeks on China Data

May 23 (Bloomberg) -- Hong Kong stocks fell, with the benchmark index capping its biggest drop in seven weeks, after a preliminary survey showed China’s manufacturing unexpectedly contracted. Concern that the Federal Reserve will scale back stimulus also dragged shares lower.

Li & Fung Ltd., a supplier to Wal-Mart Stores Inc., slumped 4.4 percent. Jiangxi Copper Co., the country’s biggest producer of the metal, dropped 2.6 percent. PetroChina Co., the nation’s No. 1 energy producer, declined 2.9 percent on lower oil prices. Brilliance China Automotive Holdings Ltd., a partner of Bayerische Motoren Werke AG, sank 3.8 percent after being rated underperform at Jefferies Hong Kong Ltd.

The Hang Seng Index slid 2.5 percent to 22,669.68 at the close, its steepest drop since April 5. All but one company fell on the 50-member gauge, with trading volume 58 percent higher than the 30-day average. The Hang Seng China Enterprises Index of mainland companies lost 2.8 percent to 10,746.70, erasing the month’s gain.

“The market is expecting China’s central government to do something to prevent a further slide of the economy, but inflation remains a concern,” said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd. in Hong Kong. “The market still believes that it’s just a matter of time before the Fed scales down its bond-purchase scheme.”

Worst Performer

The Hang Seng Index, the worst-performing developed-market gauge this year, rose less than 0.1 percent this year amid signs of slower growth in China. Data released this month showed inflation rose more than expected while producer prices declined. Hong Kong’s benchmark index traded at 11.1 times estimated earnings yesterday, below its five-year average of 12.6, according to data compiled by Bloomberg.

“Chinese equities are very inexpensive and we see that expectations with regards to China growth have come down,” said Stephen Corry, a Hong Kong-based chief investment strategist at LGT Group, a private banking and asset-management group that oversees $102 billion.

China’s manufacturing unexpectedly contracted for the first time in seven months, a Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics showed today. The preliminary reading of 49.6 missed the 50.4 median estimate in a Bloomberg News survey. A reading below 50 indicates contraction.

Resources Decline

Metal prices dropped on concern demand in China, the world’s biggest consumer of the resources, will decline. Copper for delivery in three months slid as much as 3 percent, while aluminum fell as much as 1.6 percent on the London Metal Exchange.

Jiangxi Copper fell 2.6 percent to HK$15.52. Aluminum Corp. of China Ltd., the nation’s No. 1 supplier of the light metal by market value, slid 2.8 percent to HK$3.14.

West Texas Intermediate oil for June delivery dropped 2 percent in New York yesterday. PetroChina retreated 2.9 percent to HK$9.43. Cnooc Ltd., China’s biggest offshore oil company, fell 2.5 percent to HK$14.06.

Fed Stimulus

Futures on the Standard & Poor’s 500 Index dropped 1.2 percent. The U.S. equity gauge yesterday fell 0.8 percent, reversing an earlier 1.1 percent advance after Fed Chairman Ben S. Bernanke said the central bank could “step down” the pace of asset purchases in the next few meetings if the labor market show sustainable improvement.

Li & Fung declined 4.4 percent to HK$10.88. Man Wah Holdings Ltd., a sofa maker that gets half of its sales in the U.S., slipped 4.9 percent to HK$7.17.

Brilliance China tumbled 3.8 percent to HK$8.89. Jefferies set the stock’s 12-month target price at HK$7.60, compared with yesterday’s close of HK$9.24.

Utilities Rebound

Huaneng Power International Co., a unit of China’s largest electricity producer, increased 2.6 percent to HK$8.15, climbing from its biggest drop since November 2008. Huadian Power International, based in China’s eastern province of Shandong, gained 4.5 percent to HK$3.94. Power producers fell yesterday after Citigroup Inc. said China may cut wholesale rates charged by coal-fired power plants.

Lenovo Group Ltd., the world’s second-biggest maker of personal computers, rose 2.8 percent to HK$7.38 after reporting a 90 percent surge in fourth-quarter profit after increasing its market share and boosting smartphone sales.

Futures on the Hang Seng Index declined 3 percent to 22,521. The HSI Volatility Index jumped 13 percent to 18.38, its highest level since Sept. 14, indicating traders expect a swing of 5.3 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

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