Hong Kong Shares Decline From 18-Month High on U.S. Debt

Hong Kong stocks fell, reversing gains after the city’s benchmark index hit an 18-month high, on renewed concern about U.S. debt and after a report Apple Inc. may cut production of the iPhone.

Li & Fung Ltd., which supplies Wal-Mart Stores Inc. and Target Corp., dropped 0.5 percent after Deutsche Bank AG cut its rating on the stock. AAC Technologies Holdings Inc., a supplier of speakers to Apple, lost 2.8 percent after the Nikkei newswire said orders for iPhone 5 parts had been cut amid falling sales. China Construction Bank Corp., the nation’s second-largest lender by market value, rose a second day after a regulator said the nation can boost quotas for foreign investors to purchase securities.

The Hang Seng Index slipped 0.1 percent to 23,381.51 at the close in Hong Kong, after earlier rising 0.4 percent. The Hang Seng China Enterprises Index of mainland companies was little changed at 12,006.82 after rising as much as 0.8 percent and falling up to 0.5 percent. The measure earlier rose on optimism about increasing foreign investment in securities boosted Chinese shares.

Shares declined on “tempered confidence over Obama’s ‘haywire’ remarks for markets for a debt-ceiling solution, coupled with Apple’s impact on regional supply chain names,” said Gavin Parry, managing director of Hong Kong-based Parry International Trading Ltd.

Obama Speaks

President Barack Obama warned Congress against using the debt ceiling as leverage in the spending debate, saying “markets could go haywire” and government payments, from Social Security checks to military salaries, will be held up if the limit isn’t raised.

Futures on the Standard & Poor’s 500 Index slipped 0.2 percent today. The gauge yesterday declined 0.1 percent from near a five-year high as Apple shares slumped amid concern about iPhone sales, offsetting a rally in Dell Inc. shares.

AAC Technologies sank 2.8 percent to HK$27.90. China Mobile Ltd., the mobile carrier that Apple last week said it discussed cooperating with, sank 1.4 percent to HK$88.90. Foxconn International Holdings Ltd., a handset supplier controlled by iPhone assembler Hon Hai Precision Industry Co., lost 1.6 percent to HK$3.64.

The Nikkei newswire reported that Apple scaled back orders for iPhone parts by about half this quarter on weak demand.

Li & Fung lost 0.5 percent to HK$11.68. The shares were cut to hold from buy at Deutsche Bank, while it was also placed on creditwatch with negative implications by Standard & Poors.

Among other stocks that fell, Chaowei Power Holdings Ltd. tumbled 7.3 percent to HK$3.93 as investor Hony Capital Ltd. offered to sell 150 million of its shares in the battery maker, according to a term sheet obtained by Bloomberg News.

Stock Valuations

Hong Kong’s benchmark index surged 23 percent last year as China’s economy showed signs of improvement and as central banks around the globe added stimulus. Shares on the measure traded at 11.3 times estimated earnings yesterday, compared with 13.3 for the S&P 500 and 12 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

China-related shares extended yesterday’s gains after the nation’s securities regulator yesterday said China can increase by 10 times the size of two investment programs that allow foreign investors to buy securities on domestic markets.

China Construction Bank rose 0.3 percent to HK$6.54. China Minsheng Banking Corp. jumped 2.4 percent to HK$10.10 and Guangzhou R&F Properties Co., a builder in the southern Chinese city, rose 2.5 percent to HK$14.76.

Market Reforms

Chinese authorities may also allow individual investors to participate in the Renminbi Qualified Foreign Institutional Investors, or RQFII, program in its next phase of expansion, Guo Shuqing, chairman of the China Securities Regulatory Commission, said at a conference in Hong Kong yesterday.

The program, which is now open only to Hong Kong units of Chinese financial companies, allows investors to channel offshore yuan back to the mainland.

“Optimism on the fast pace of China’s financial market reforms to bolster domestic markets and increase access to foreign markets for locals is a continuing theme today,” said Parry of Parry International Trading.

The Hang Seng Volatility Index rose 1.8 percent to 14.53, indicating options traders expect a swing of 4.1 percent in the next 30 days. Futures on the Hang Seng Index were little changed at 23,381.

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