A gauge of Chinese stocks in Hong Kong fell, dropping more than 20 percent from this year’s high, after the World Bank cut its global growth forecast amid signs China’s economy is slowing.
The Hang Seng China Enterprises Index, also known as the H-Share index, plunged 2.7 percent to 9,688.30, extending losses from a Feb. 1 high to 21 percent and closing at the lowest since Sept. 26. The Hang Seng Index dropped 2.2 percent to 20,887.04, the lowest since Oct. 8. About seven shares fell for each that rose, with trading volume twice the 30-day average.
Every group in the broader Hang Seng Composite Index retreated, with energy companies posting the biggest decline. China Construction Bank Corp., the nation’s second-largest lender, declined 3.2 percent. China Overseas Land & Investment Ltd., the biggest mainland developer listed in Hong Kong, sank 3.5 percent. China Harmony Auto Holding Ltd., a distributor of luxury cars, tumbled 16 percent on its debut.
“Set aside cash and lock in profits wherever you can,” Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion, said by phone. “There’s so much uncertainty on global growth and we’re cashing in on gains we’ve made from being in equities, saving that up for when things stabilize.”
The H-Share index fell more than 20 percent from this year’s high, the threshold some investors consider a bear market. Shares on the gauge were valued at 1.2 times net assets, the lowest ratio against the MSCI All Country World Index since November 2003, according to data compiled by Bloomberg.
Shares dropped after the World Bank cut its 2013 growth outlook for China to 7.7 percent from 8.4 percent. Australia & New Zealand Banking Group Ltd., Barclays Plc, Daiwa Securities Group Inc. and Skandinaviska Enskilda Banken AB also reduced their economic outlooks this week after data released on June 9 showed industrial production trailed estimates in May and exports rose the least in 10 months.
The Value China ETF, which tracks shares of the nation’s biggest companies, had the most short sales as a percentage of turnover among Hong Kong securities as of noon today, according to bourse data compiled by Bloomberg. Short sellers seek to profit from declines on borrowed shares. Short covering occurs when an investor buys a security to close a short position.
The Shanghai Composite Index fell 2.8 percent to the lowest since Dec. 13 as it resumed trading after a three-day holiday. The benchmark Hang Seng Index dropped 5.8 percent this year through June 11, making Hong Kong the worst performer among the world’s developed equity markets, according to data compiled by Bloomberg.
About 133 callable bull-and-bear contracts tied to the Hang Seng Index were canceled today, the most since January 2009, said Edmond Lee, an equity derivatives sales director at Societe Generale SA in Hong Kong. The securities let investors make directional bets on stocks or indexes. The products are canceled if changes in the underlying assets exceed predetermined amounts to limit losses for the buyers.
Shares on the Hang Seng Index traded at 9.9 times estimated earnings, compared with multiples of 14.6 for the Standard & Poor’s 500 Index and 12.7 for the Stoxx Europe 600 Index. The gauge’s 14-day relative strength index fell to 27.28 on June 11, below the threshold of 30 some investors see as a sign shares have fallen too fast.
More than $2.5 trillion has been erased from the value of global equities since May 22, when Federal Reserve Chairman Ben S. Bernanke said stimulus efforts may be scaled back if U.S. employment shows “sustainable improvement.” The Bank of Japan left its lending program unchanged this week.
“The driving force obviously is the potential about the Fed’s tapering stimulus,” said Grace Tam, Hong Kong-based global market strategist at JPMorgan Asset Management Ltd., which oversees about $1.3 trillion globally. “For China, economic data isn’t good. For the moment, there’s not much catalyst for markets to rally, and the market could be very volatile for this quarter or until the end of this summer.”
Chinese banks and developers slumped. China Construction Bank sank 3.2 percent to HK$5.53. Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, lost 1.6 percent to HK$5.09. China Overseas Land dropped 3.5 percent to HK$20.50. Country Garden Holdings Co., a homebuilder controlled by billionaire Yang Huiyan, tumbled 6.1 percent to HK$3.87.
Energy companies dropped as crude oil futures fell on expectations demand will fall. PetroChina Co., the nation’s biggest oil producer, sank 3.8 percent to HK$8.31. Cnooc Ltd., China’s No. 1 offshore energy explorer, slipped 2.4 percent to HK$12.90.
China Harmony Auto, which raised $215 million in its initial public offering last week, slumped 16 percent to HK$5.10 in the worst first day of trading in Hong Kong since February 2012. Hopewell Hong Kong Properties Ltd., an owner of buildings in the city’s Wan Chai business area, scrapped a $780 million IPO after stock markets tumbled.
Prada SpA slid 3.7 percent to HK$70.55 after the Italian luxury-goods maker reported first-quarter profit growth that fell to the slowest pace in at least a year.
Esprit Holdings Ltd., a Hong Kong-based clothier that counts Europe as its biggest market, declined 4.8 percent to HK$11.12. Citic Securities Co. cut the company’s rating to hold from overweight.
Futures on the Hang Seng Index fell 1.7 percent to 20,800. The HSI Volatility Index jumped 13 percent to 21.46, the highest since July 2012. The reading indicates traders expect a swing of 6.2 percent for the city’s benchmark equity measure in the next 30 days.