China Shares in Hong Kong Decline Amid Default Concern
Chinese stocks listed in Hong Kong fell to a three-week low as the national legislature began its annual meeting and concern mounted that the country may be facing its first onshore corporate bond default.
The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, lost 1.2 percent to 9,661.99 at the close in Hong Kong, its lowest level since Feb. 10. The Hang Seng Index lost 0.3 percent to 22,579.78 after rising as much as 0.8 percent. The Shanghai Composite Index slid 0.9 percent.
China today retained a target for 7.5 percent growth in 2014, signaling limits to curbs on pollution and credit expansion. Investors are watching the National People’s Congress for clues to the next steps to fix local-government finances, rein in shadow banking and open up state businesses to private investment. Shanghai Chaori Solar Energy Science & Technology Co. said it may be unable to make an interest payment in full by the March 7 deadline.
“The market is interpreting new information coming from China and the 7.5 percent growth target is the same as last year and it’s not much of a support,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “Reform is here, but we still have to solve many problems. In the financial sector, there’s concern over whether some bank loans are of good quality.”
PetroChina Co. slumped 2.2 percent to HK$8.06 and China Construction Bank Corp. lost 1.5 percent to HK$5.18, the biggest drags on the H-share gauge.
Shanghai Chaori said it may not be able to make an 89.8 million yuan ($14.7 million) interest payment. It plans to pay 4 million yuan to bondholders, the company said in a statement to the Shenzhen stock exchange yesterday. A default would highlight strain in China’s financial system after a trust product issued by China Credit Trust Co. was bailed out in January.
Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The gauge rose 1.5 percent to a record yesterday after Russia signaled the Ukraine crisis won’t immediately escalate. In his first public remarks since Ukraine said its Crimean peninsula had been taken over by Russian forces, President Vladimir Putin said he reserved the right to use force to defend ethnic Russians while there’s “no such necessity” at present.
“I think it’s a holding pattern,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which oversees more than $140 billion in assets. “It’s good that the situation has not deteriorated further like it did over the weekend. President Putin is holding back, but we still got a long way to resolve this problem.”
China Medical System Holdings Ltd. plunged 6.2 percent to HK$9.35 after the preliminary results of a clinical trial on a liver cancer treatment showed no statistical difference from a placebo in some patient groups.
Among stocks that rose, Tencent Holdings Ltd. advanced 1.6 percent to a record HK$622.50, providing the biggest boost to the Hang Seng Index. Casino-operator Sands China Ltd. added 2.1 percent to HK$66.15, while Cathay Pacific Airways Ltd. rose 1.8 percent to HK$15.68.
The Hang Seng Index (HSI) traded at 10.17 times estimated earnings today, compared with 15.92 for the S&P 500 yesterday, according to data compiled by Bloomberg.
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