Hong Kong Stocks Decline as Fed Bets Sink Property Developers

  • Sun Hung Kai paces drop among builders with 1.8% retreat
  • Currency peg to dollar makes Hong Kong vulnerable to Fed rates

Hong Kong stocks fell for the third time in four days amid concern rising borrowing costs will dent the outlook for the city’s property market.

The Hang Seng Index lost 0.4 percent at the close. A gauge of real estate companies declined, with Sun Hung Kai Properties Ltd. and Cheung Kong Property Holdings Ltd. sliding at least 1.2 percent. Sands China Ltd. paced a retreat by casino operators. Prada SpA jumped the most in nearly five years after the luxury-goods maker’s chairman predicted a return to growth in sales and earnings next year. The Shanghai Composite Index was little changed at the close, with a 10-day volatility gauge falling to a two-year low.

A bull-market run in Hong Kong is tiring as an improving U.S. economy scotches Brexit-fueled optimism that higher borrowing costs were a remote prospect. Traders are pricing in a 42 percent probability of a U.S. rate increase next month, and a nearly 65 percent chance the Federal Reserve will act by December. Hong Kong’s currency peg to the greenback makes the city vulnerable to U.S. monetary policy.

“Markets have gone up quite significantly and some investors will take that as an excuse to take profits,” said Yen Chiu, a Hong Kong-based trader at China Securities International Finance Holding Co. “Some big property names are going down.”

The Hang Seng Index dropped to 22,821.34, with trading volume being 26 percent below a 30-day average. The Hang Seng China Enterprises Index fell 0.6 percent, extending a 0.6 percent loss last week. The Shanghai Composite slipped less than 0.1 percent.

Heavier Burden

Monday’s losses pared the rebound by the Hang Seng Index since this year’s low to 25 percent. Hong Kong remains caught in a “pincer” between China’s structural slowdown and the return of U.S. borrowing costs to more normal levels, according to BNP Paribas SA.

“Higher borrowing costs would mean a heavier burden on mortgage loans,” said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong. “This may reduce the demand for property investments.”

Sun Hung Kai retreated 1.8 percent and Cheung Kong Property lost 1.2 percent, pushing a gauge of developers in Hong Kong to a one-week low. A measure of casino stocks slid 2.2 percent as Sands China and Galaxy Entertainment Group Ltd. shed at least 2.4 percent. Prada jumped 12 percent after saying it sees a rebound from weak demand in China and terrorist attacks in Europe that caused its first-half sales to slump.

BYD Electronic International Co. slumped the most in six months after the handset component maker said growth in global smartphone shipments will decelerate in the next five years. AAC Technologies Holdings Inc. jumped to a record high after UOB Kay Hian Holdings Ltd. raised its stock rating.

Industrial Profits

Metallurgical Corp. of China Ltd. and Power Construction Corp. of China Ltd. added at least 2.3 percent in mainland trading after profits at the nation’s industrial companies increased 11 percent in July, more than double the rate in June, according to official figures released over the weekend.

The ChiNext Index of small-company shares added 0.2 percent after dropping 0.7 percent last week. China’s regulators are intensifying scrutiny of unusual movements in stocks as they seek to damp speculation in the nation’s financial markets. Exchanges in Shanghai and Shenzhen have opened 774 investigations into wild price swings since the start of July and halted 38 investor accounts, according to the two bourses’ official micro-blogs.

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