Hong Kong Stocks Drop to Four-Month Low on China Concern

Hong Kong stocks fell, with the benchmark index sliding to a four-month low, after a report yesterday on China’s manufacturing industry added to concern the world’s second-largest economy is weakening.

Diaper-maker Hengan International Group Co. slid 5.9 percent to lead declines on the Hang Seng Index. Goldpoly New Energy Holdings Ltd. sank 10 percent after the solar power project developer said it will sell new shares. China Shenhua Energy Co. and China Coal Energy Co. slipped at least 1.4 percent as the nation’s banking regulator issued an alert on loans to coal miners, according to two people familiar with the matter. Citic 21CN Co. rose almost five-fold after Alibaba Group Holding Ltd. and Yunfeng Capital said they will buy a majority stake in the firm.

The Hang Seng Index lost 1.2 percent to 22,450.06 at the close in Hong Kong, the lowest since Sept. 4. Five stocks declined for each that rose on the 50-member gauge, which fell 3 percent this week. The Hang Seng China Enterprises Index of mainland shares listed in the city slipped 0.9 percent to close at 10,014.02, after falling below 10,000 on an intraday basis for the first time since Sept. 2.

“The growth momentum of the Chinese economy is slowing because of the tightening of monetary conditions there,” said Ben Kwong, Hong Kong-based chief operating officer at brokerage KGI Asia Ltd. “Investors are worried the tightening will hurt the economy even further.”

Major Risk

A private purchasing managers index yesterday showed China’s manufacturing may contract in January for the first time in six months, adding to risks for an economy that’s facing elevated borrowing costs. One-third of investors surveyed in a Bloomberg Global Poll this month said China’s economic slowdown is the world’s major risk, up from 26 percent in November.

The preliminary reading of 49.6 for the gauge released yesterday by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.5 in December and a 50.3 median estimate of 19 analysts in a Bloomberg News survey. A number below 50 indicates contraction.

“Most of the initial selling was related to the weak U.S. overnight, which was in part a reaction to the poor China flash PMI,” said Andrew Sullivan, a sales director at Kim Eng Securities. “Some funds took the opportunity to accumulate stock they like because the buying is quite selective.”

China’s economy grew 7.7 percent in the fourth quarter from a year earlier, slowing from 7.8 percent the previous quarter while beating an estimate for a 7.6 percent expansion, data from the National Bureau of Statistics this week showed.

Futures on the Standard & Poor’s 500 Index fell 0.2 percent today after the measure slid 0.9 percent yesterday. The H-share gauge dropped as much as 1.2 percent today and closed at its lowest since Aug. 30.

Coal Loans

China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults.

China Shenhua, the nation’s biggest producer of the fuel, declined 1.4 percent to HK$21.25 after the news, while China Coal fell 1.5 percent to HK$4.01.

Industrial & Commercial Bank of China Ltd. lost 1 percent to HK$4.76. Chairman Jiang Jianqing said the lender won’t compensate investors for losses tied to a troubled trust product distributed by the bank, CNBC reported. A default on the product, which raised money for a failed coal mining company, would undermine the implicit guarantees offered by trust companies to draw funds from wealthy investors.

Trust Concerns

These trusts are “unregulated and they’re a disaster waiting to happen,” said Francis Lun, chief executive officer of Geo Securities Ltd. “If things go wrong, like what’s happening now, all hell breaks loose. It will shatter confidence in the major banks.”

The Hang Seng Index dropped 3.7 percent this year, the worst performer behind Japan’s Nikkei 225 Stock Average among major developed-market gauges tracked by Bloomberg. The H-share measure declined 7.4 percent in 2014.

Hengan slumped 5.9 percent to HK$82.20, the steepest drop since 2009, as UOB-Kay Hian Ltd. cut its rating on the stock to hold from buy. Citigroup Inc. expects the company’s second-half tissue paper sales to rise 13 percent, compared with first-half growth of 15 percent. Those products accounted for about half Hengan’s sales in 2012, data compiled by Bloomberg show.

Goldpoly sank 10 percent to HK$1.69 after announcing that it plans to raise as much as HK$825.6 million ($106 million) by selling up to 480 million new shares. The company will use the money to fund potential solar-plant purchases.

Among stocks that rose, Citic 21CN soared 372 percent to HK$3.92, the highest close since 2000. Alibaba, the owner of China’s biggest e-commerce business, and Yunfeng Capital said they will buy a majority stake in the firm for HK$1.33 billion to enter the drug-data industry.

Tencent Holdings Ltd., which posted the second-largest drop on the Hang Seng Index, sank 4 percent to HK$501, the biggest decline since August.

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