Hong Kong Stocks in First Drop in Five Days as U.S. Data Awaited

July 25 (Bloomberg) -- Hong Kong stocks retreated for the first time in five days as investors await U.S. economic data that may shed light on the timing of any reduction in Federal Reserve stimulus. Rail shares jumped after the government said it will speed up railway construction.

Techtronic Industries Co., a maker of power tools that gets 73 percent of its sales from North America, fell 2.1 percent. GCL-Poly Energy Holdings Ltd., the world’s biggest producer of solar-grade polysilicon, slid 2 percent, falling the most in a week. China Railway Group Ltd., the country’s No. 2 train-line builder, rose 1.8 percent. China Resources Land Ltd., the second-biggest mainland developer traded in Hong Kong, led builders higher after a Beijing land lot sold for a record.

The Hang Seng Index slipped 0.3 percent to 21,900.96 at the close in Hong Kong, after yesterday closing at its highest since June 5. Trading volume was 43 percent less than its 30-day intraday average. About four stocks gained for every three that fell on the Hang Seng Composite Index. The Hang Seng China Enterprises Index of mainland companies slid 0.3 percent to 9,752.60.

“U.S. data right now is good but whether it’s good enough for the Fed to stop buying assets, the market will still need to see,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “Investors are chasing some stocks that benefit from China’s policies but since some of their share prices shot up, there may be some profit taking.”

The Hang Seng Index is down 3.3 percent this year, the second-worst performance among 24 developed markets tracked by Bloomberg, as shares slid on signs China’s growth is slowing and amid concern the Federal Reserve will taper its stimulus.

State Council

Premier Li Keqiang said China will speed up railway construction in central and western parts of the country. China will set up a railway development fund, the State Council said after a meeting led by Li. Local governments and private investors will be allowed to own some city and regional railways.

China Railway Group rose 1.8 percent to HK$4.26. CSR Corp., the country’s biggest maker of rolling stock, gained 2.4 percent to HK$5.45. Both shares are up more than 8 percent this week.

Resolutions passed at yesterday’s cabinet meeting included the exemption of companies with monthly sales of less than 20,000 yuan from value-added and business taxes starting Aug. 1, according to the statement. China will also reduce administrative fees on export inspections and encourage financing and tax-rebate services for small firms to promote trade, according to yesterday’s statement.

Building Materials

Anhui Conch Cement Co., China’s biggest maker of the material, rose 3.3 percent to HK$23.65, while China National Building Material Co., the second-largest, advanced 4.2 percent to HK$7.46. China Shipping Development Co., the crude and dry-bulk carrier of the nation’s second-largest shipping company, jumped 8.3 percent to HK$3.53.

China’s plan to resolve overcapacity in the steel, cement, aluminum and shipping industry has been submitted to the State Council and won’t take long for its official release, Shanghai Securities News reports, citing unidentified person close to National Development and Reform Commission.

Nothing Dramatic

“If expectations are too high for China’s policies, investors may be a bit disappointed as the government will probably refrain from announcing anything dramatic on the fiscal front,” said Mari Oshidari, a Hong Kong-based market strategist at Okasan Securities Group Inc. “Although they may not be huge, they would help boost investor sentiment, which would support the stock market.”

The city’s benchmark gauge rose 0.2 percent yesterday as railway companies and banks increased, tempering a worse-than-expected preliminary manufacturing survey from HSBC Holdings Plc and Markit Economics. The Hang Seng Index traded at 10.5 times estimated earnings yesterday, compared with 15.3 times for the Standard & Poor’s 500 Index and 13.5 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

China’s “bottom line” for gross domestic product growth is 7 percent and the nation can’t let growth go below that, Premier Li Keqiang said in a meeting with economists and businesspeople, according to a July 23 Beijing News report.

Materials and energy companies led declines this year on the Hang Seng Composite on concern demand will weaken amid slower growth in China’s economy. Gauges of information technology, utilities and services were the only measures that rose among the index’s 11 industry groups.

Book Value

The Hang Seng China Enterprises Index, also known as the H-share index, fell as much as 27 percent from a Feb. 1 high, meeting some investors’ definition of a bear market. The measure, which has since rebounded almost 10 percent, traded at 1.18 times the value of net assets, 34 percent lower than it five-year average of 1.78.

Futures on the S&P 500 slid 0.3 percent today. The U.S. equity benchmark yesterday capped its first two-day decline in a month after the Chinese manufacturing report. The gauge earlier climbed within 3 points of 1,700 for a third straight day.

The number of people in the U.S. continuing to claim jobless benefits fell by 89,000 in the week to July 13, according to a Bloomberg survey of economists before data due today. The report comes after figures yesterday showed that new home sales rose more than forecast in June to a five-year high, and a manufacturing gauge rose.

Techtronic slumped 2.1 percent to HK$18.90, while Man Wah Holdings Ltd., a sofa maker that gets half its sales from the U.S., fell 1.6 percent to HK$9.15.

Drugmaker Sino Biopharmaceutical Ltd. dropped 2.8 percent to HK$5.62 after saying Chairman Tse Ping sold 100 million shares in the company at HK$5.43 each. The company closed at $5.78 yesterday.

Sands, Solar

Sands China Ltd., a unit of billionaire Sheldon Adelson’s Las Vegas company, slumped 2 percent to HK$41.95, leading declines on the Hang Seng Index. The shares closed at a record high yesterday ahead of its earnings, which showed its second-quarter profit more than tripled.

GCL-Poly Energy Holdings Ltd., the world’s biggest producer of solar-grade polysilicon, retreated 2 percent to HK$1.94. Solargiga Energy Holdings Ltd., a maker of silicon wafers, fell 2.4 percent to 40.5 Hong Kong cents. Solar companies jumped last week on China’s plan to boost generation fivefold.

China Resources Land climbed 1 percent to HK$21, while Guangzhou R&F Properties Co., a builder in the southern Chinese city, increased 0.7 percent to HK$11.48.

Beijing sold a 75,360 square-meter (811,168 square-foot) plot, in a northeastern part of the city near the airport, for 2.36 billion yuan ($385 million) to COFCO Property (Group) Co. on July 23, according to a statement on the local land reserve center’s website.

Price Increase

Tencent Holdings Ltd., the world’s No. 2 Internet company by market value and the best performing Hang Seng Index stock this year, added 1.1 percent to HK$334.40, a record. Jefferies Hong Kong Ltd. analysts led by Cynthia Meng, increased the target price for the shares to HK$380 from HK$330, citing earnings that will beat estimates on advertising and development of the WeChat mobile platform.

Hang Seng Index futures retreated 0.3 percent to 21,901. The HSI Volatility Index slid 1.1 percent to 17.31, indicating traders expect a swing of 5 percent for the equity benchmark in the next 30 days.

To contact the reporters on this story: Emma Bi in Hong Kong at ebi4@bloomberg.net; Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

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