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Hong Kong Stocks Drop Most in Week on China Funding Costs

Dec. 19 (Bloomberg) -- Hong Kong stocks fell, with the benchmark index headed for its steepest drop in a week, as higher funding costs in China weighed on sentiment. Lenders and property developers declined.

China Construction Bank Corp., the nation’s second-largest lender, slumped 1.7 percent. Hang Lung Properties Ltd., a Hong Kong-based developer that invests in mainland shopping malls, dropped 4.6 percent on concern the Federal Reserve’s decision to trim stimulus will lead to higher interest rates. Sands China Ltd., a unit of billionaire Sheldon Adelson’s Las Vegas gaming company, slid 3 percent as gaming shares declined.

The Hang Seng Index dropped 1.1 percent to 22,888.75 at the close in Hong Kong, its biggest decline since Dec. 11. About seven stocks fell for each that gained on the 50-member gauge amid volume 23 percent higher than the 30-day average. The Hang Seng China Enterprises Index, also known as the H-share index, retreated 1.7 percent to 10,777.91. The gauge is less than 1 percent away from erasing its gains since China’s detailed reform measures were announced on Nov. 15.

“After the Fed news from the U.S. and the subsequent fall, you would think the upside would be limited and people are panic selling,” said Alex Wong, a Hong Kong-based director at Ample Capital Ltd. “China’s higher funding costs would be an excuse to sell, but objectively we are near the year-end so it’s a seasonal factor.

China’s interest-rate swaps hit a record as the central bank refrained from injecting cash into the financial system at a time when demand for funds is climbing. The seven-day repo rate, a gauge of funding availability in the banking system, posted its biggest jump yesterday since a record cash crunch in June.

Lenders Slide

China Construction Bank dropped 1.7 percent to HK$5.84, while Industrial & Commercial Bank of China Ltd., the nation’s largest lender, slipped 1.1 percent to HK$5.19. Agricultural Bank of China Ltd., the third-biggest, retreated 1.3 percent to HK$3.86.

Futures on the Standard & Poor’s 500 Index fell 0.2 percent today. The equity gauge jumped 1.7 percent yesterday to a record after the Fed said it will trim monthly bond purchases to $75 billion from $85 billion in January, citing improvement in the labor market. The central bank said it may hold rates near zero even if unemployment falls below the 6.5 percent rate it earlier cited as a catalyst for an increase.

A measure of developers dropped the most on the Hang Seng Index. Hang Lung Properties sank 4.6 percent to HK$24. New World Development Co., a builder controlled by billionaire Cheng Yu-tung, fell 2 percent to HK$9.77.

The reduction of U.S. stimulus may result in fund outflows from the city and may lead to interest rates rising ahead of the U.S., resulting in higher mortgage costs, Financial Secretary John Tsang said at a briefing today.

Fed Decision

‘‘The Fed’s decision removed uncertainties and the scale of tapering was smaller than expected,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “But tapering could lead to outflows from Asia’s emerging markets and that’s impacting sentiment in Hong Kong. Tighter liquidity in China during the year-end when demand is high is adding pessimism to the market as well.”

The Hang Seng Index climbed 16 percent from its June low on signs China’s economy is stabilizing. The measure traded at 10.9 times estimated earnings, compared with 16.04 for the S&P 500 yesterday. The H-share index climbed 21 percent from this year’s low on June 25.

Casino companies, which led gains this year on the MSCI Hong Kong Index, dropped today. Sands China slumped 3 percent to HK$61.50, and Galaxy Entertainment Group Ltd., the Macau casino operator controlled by billionaire Lui Che-woo, retreated 2.5 percent to HK$67.75.

IPO Market

Among market debuts today in Hong Kong, Fu Shou Yuan International Group Ltd. jumped 45 percent to HK$4.82. Consun Pharmaceutical Group Ltd. surged 12 percent to HK$4.90. China Conch Venture Holdings Ltd. soared 24 percent. Econtext Asia Ltd., an e-commerce infrastructure provider, jumped 29 percent. Warehouse-leaser Kerry Logistics Network Ltd. climbed 0.2 percent.

Futures on the Hang Seng Index dropped 1.5 percent to 22,833. The Hang Seng Volatility Index sank 3.4 percent to 15.59, indicating traders expect the benchmark equity index to swing 4.5 percent 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: Sarah McDonald at smcdonald23@bloomberg.net

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