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Hong Kong Stocks Decline as Tencent Drops; Citic Surges

March 27 (Bloomberg) -- Hong Kong stocks fell as Tencent Holdings Ltd. dragged the city’s benchmark index lower. Citic Pacific Ltd. soared on a plan to buy its parent’s assets.

The Hang Seng Index retreated 0.2 percent to 21,834.45 at the close in Hong Kong after gaining as much as 0.2 percent. The Hang Seng China Enterprises Index, also known as the H-share index, gained 0.2 percent to 9,873.53. Tencent slid amid a regional rout in Internet shares on concern valuations are overstretched, while Citic Pacific capped its biggest rally since 2009. China industrial profit growth slowed to 9.4 percent in the two months through February, compared with 17 percent for the same period last year, data showed today.

“It’s a tug of war between bulls and bears today,” said Louis Wong, a fund manager at Phillip Capital Management. “Investor sentiment revived a bit after the market dropped to the year’s low but with the strong rebound over the last few days, investors will trade with more caution. China’s industrial profits data reaffirmed that the economy is continuing to slow down but there’s speculation that weak data will prompt the government to implement stimulus.”

BOC Hong Kong (Holdings) Ltd. fell 6.2 percent on a dividend cut and after the lender’s shares were downgraded. BYD Co., a mainland electric-car maker backed by Warren Buffett, dropped 4.9 percent on a report it plans to sell new stock. Citic Pacific surged 13 percent, while Tencent slid 5.9 percent.

The H-share gauge rebounded 7.3 percent since capping a 20 percent drop from a December peak on March 20 amid speculation China’s government is loosening funding restrictions for developers and banks, and as weaker economic data fueled optimism the state would act to stabilize growth. The index lost 8.7 percent this year, dragging its price-to-book ratio to 1.14 times, compared with 2 for the MSCI All-Country World Index of developed and emerging shares.

China Liquidity

China’s benchmark money-market rate surged by the most since January after the central bank withdrew more funds from the banking system. The People’s Bank of China sold 20 billion yuan ($3.2 billion) of 28-day repurchase agreements at a yield of 4 percent and 32 billion yuan of 14-day repos at 3.8 percent, according to a statement on its website today.

Of 209 companies in the Hang Seng Composite Index that posted annual earnings this month and for which Bloomberg had estimates, almost half beat profit projections. Industrial & Commercial Bank of China Ltd., the nation’s largest lender, and China Cosco Holdings Co. are among those scheduled to report earnings today.

Citic, Tencent

Citic Pacific rose as much as 31 percent today before paring gains to close 13 percent higher at HK$14.30. The steelmaker signed a framework agreement to acquire Citic Group Corp.’s main operating unit, it said yesterday. The unit, called Citic Ltd., has total shareholder equity of 225 billion yuan ($36 billion), Citic Pacific said, without providing a total value for the deal.

Tencent dropped 5.9 percent to HK$521.50 amid concern the sector’s rally has gone too far and that companies may be overpaying for acquisitions. King Digital Entertainment Plc, developer of the “Candy Crush” gaming app, tumbled 16 percent in its New York trading debut yesterday. Tencent yesterday agreed to pay about $500 million for a stake in South Korea’s CJ Games. Shares of Asia’s biggest Internet company almost doubled last year and traded at 38.7 times estimated earnings as of yesterday.

“The earnings growth of Internet companies and media companies has been quite strong, but obviously everyone knows that their valuations have become expensive,” Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management, which oversees about $60 billion, said by phone. “One should expect some profit-taking from the sector.”

BOC, BYD

BOC Hong Kong fell 6.2 percent to HK$21.95 after the lender announced a dividend cut, and brokerages including Daiwa Securities Group Inc., Mizuho Securities Co. and DBS Vickers Hong Kong Ltd. cut their rating on the stock.

BYD slid 4.9 percent to HK$45.65 after people familiar with the matter said the carmaker is reviving plans to sell new stock equivalent to as much as 20 percent of its Hong Kong-listed shares.

Futures on the Standard & Poor’s 500 Index added 0.1 percent. The gauge dropped 0.7 percent yesterday, with declines led by technology and commodity companies. Losses extended in the last hour of trading. U.S. factories received fewer orders for machinery, communications gear and computers in February, signaling investment is slowing after an unusually harsh winter damped sales, data from the Commerce Department showed.

President Barack Obama, speaking in Brussels, warned of consequences of complacency in Ukraine and said Russia’s actions must be met with condemnation. Ukraine and the International Monetary Fund are nearing the end of bailout talks today as the U.S. and its European allies warned they’ll further penalize Russia if it intensifies the crisis after annexing Crimea.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Jim Powell

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