Hong Kong H-Shares Decline as Banks Fall on PBOC Repos

A gauge of mainland companies traded in Hong Kong fell as China’s central bank drained funds from the financial system for the first time in eight months after new lending reached a record.

China Minsheng Banking Corp., the nation’s first non-state lender, sank 1.1 percent. Guangzhou Automobile Group Co. dropped 3.3 percent after surging yesterday the most since November. Semiconductor Manufacturing International Corp. tumbled 16 percent after the circuit maker missed earnings estimates. Bank of East Asia jumped 3 percent after posting record profit, to lead the Hang Seng Index higher.

The Hang Seng China Enterprises Index, also known as the H-share index, slid 0.4 percent to 10,057.83 at the close in Hong Kong. The Hang Seng Index climbed 0.2 percent to 22,587.72 after sliding as much as 0.4 percent. Almost three stocks dropped for every two that gained on the 50-member gauge, with volume 44 percent lower than the 30-day intraday average.

“People are worried that there will be over-tightening as the People’s Bank of China tries to squeeze the shadow banks,” said Andrew Sullivan, a Hong Kong-based director at Kim Eng Securities. “It’s ironic but when they use the repo it hurts smaller Chinese banks rather than the shadow ones. The market is lacking conviction ahead of earnings results. With Bank of East Asia reporting today, earnings season is kicking off.”

Limiting Liquidity

China’s central bank sold repurchase contracts, draining funds from the banking system and driving money-market rates higher. The People’s Bank of China conducted 48 billion yuan ($7.9 billion) of 14-day repurchase contracts today, according to two traders. The monetary authority last issued such contracts on June 6.

“Repo is important because that regulates the liquidity,” Sullivan said. “But as the loan data showed over the weekend, it is not a liquidity problem. The reality is that it’s an issue with allocation of capital.”

Aggregate financing, the broadest measure of credit, was a record 2.58 trillion yuan, exceeding the 1.9 trillion yuan median estimate in a Bloomberg survey and the previous high of 2.54 trillion yuan in January 2013, a Feb. 15 report showed.

Lenders Slide

China Minsheng slid 1.1 percent to HK$7.90. China Merchants Bank Co., a lender that gets all its revenue from the mainland, retreated 0.8 percent to HK$14.62.

Guangzhou Automobile dropped 3.3 percent to HK$7.93 after yesterday jumping 8 percent. Anhui Conch Cement Co., China’s biggest maker of the building material, slipped 3.8 percent to HK$29.30. The Chinese city of Shijiazhuang has started a second round of cement factory demolitions aimed at fighting air pollution, China Daily reported, citing Mayor Wang Liang. Guangzhou Automobile and Anhui Conch led declines on the H-share gauge today.

Semiconductor Manufacturing tumbled 16 percent to 67 Hong Kong cents after saying its fourth-quarter profit was $14.7 million, missing analyst estimates of a $20.8 million gain.

Hong Kong’s benchmark Hang Seng Index entered a so-called correction this month, sliding at least 10 percent from its recent peak in December as manufacturing data signaled a slowdown in the world’s second-largest economy. The index has pared losses to 3.1 percent this year after China’s new credit climbed and trade unexpectedly accelerated in January. The H-share gauge is down 7 percent for the period.

Output Gap

The gap in reported economic output between China’s provinces and national statistics narrowed for the first time in six years as Communist Party leaders vowed to reduce the focus on growth in evaluating local officials. Data suggest regional officials are heeding directives to shift toward more sustainable expansion. Still, the excess of the provincial total over the national figure remains more than the size of Indonesia’s economy.

Bank of East Asia gained 3 percent to HK$31.35, its biggest gain since Sept. 17. Hong Kong’s largest family-run lender said 2013 net income increased 9 percent to a record HK$6.61 billion ($852 million) from a year earlier.

Brightoil Petroleum Holdings Ltd., a marine fuel supplier, surged 16 percent to HK$2.58 after saying it will buy oil and gas assets in China’s Bohai Bay area from Anadarko Petroleum Corp. for $1.08 billion.

Futures on the Standard & Poor’s 500 Index were little changed today. U.S. markets were closed yesterday for a holiday.

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