Hong Kong H-Shares Slide Toward Bear Market as BYD Drops

Hong Kong stocks fell, with a measure of Chinese companies sliding toward a so-called bear market, as BYD Co. and insurers led declines.

BYD sank 8.9 percent after the electric-car maker’s first-quarter profit forecast fell short of expectations. People’s Insurance Co. (Group) of China Ltd. dropped 2.5 percent, pacing declines in the sector. Cheung Kong Holdings Ltd. slid 1.5 percent after the Federal Reserve signaled it may raise interest rates next year. Country Garden Holdings Co. rebounded 11 percent from the biggest drop since 2008 after Goldman Sachs Group Inc. added the mainland real-estate company to its conviction buy list.

The Hang Seng China Enterprises Index, also known as the H-share index, fell 1.3 percent to 9,234.98 as of 1:09 p.m. in Hong Kong. The measure has slid 20 percent from its Dec. 2 peak, a threshold some investors consider a bear market. The Hang Seng Index fell 1.4 percent to 21,275.33. About eight stocks declined for each that rose on the 50-member gauge.

“Investors are taking cues from company results and trying to seize opportunity from individual stocks,” said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd in Hong Kong. “In the short term, investors are reacting to the Fed statement. The major concern is still China’s economic slowdown and company default risks.”

The H-share measure fell 13 percent this year through yesterday as Chinese data including credit growth, industrial production and exports signaled a slowdown in the world’s second-largest economy. The measure traded at 6.4 times estimated earnings yesterday, compared with 9.8 for the Hang Seng Index and 15.8 for the Standard & Poor’s 500 Index.

China Outlook

Goldman Sachs reduced its estimate for China’s gross domestic product growth this year to 7.3 percent from 7.6 percent, and reduced its first-quarter growth forecast to 5 percent from 6.7 percent. Growth will pick up during the year as external factors and domestic policy turn more supportive, Goldman strategists led by Li Cui wrote in a note. The nation’s official 2014 expansion target is 7.5 percent, after rising 7.7 percent last year, the same pace as in 2012.

Of the 80 companies that reported annual earnings in Hong Kong this month for which Bloomberg has estimates, 59 percent exceeded analyst estimates. More than 400 companies are scheduled to report results through next week, according to data compiled by Bloomberg.

Futures on the S&P 500 fell 0.2 percent today after the gauge dropped 0.6 percent yesterday. The central bank’s bond-buying program, which was reduced by another $10 billion to a $55 billion monthly rate yesterday, will be wound down by year-end with a key rate increase to follow within six months, Fed Chair Janet Yellen indicated.

Property Sector

Hong Kong developers including Sino Land Co. and Cheung Kong retreated. With the city’s currency pegged to the dollar, the market tracks rising rates in the U.S., which would translate into higher mortgage costs.

Data on March 18 showed growth in new home prices slowed last month, amid property curbs and tighter credit to rein in excessive borrowing. Closely-held developer Zhejiang Xingrun Real Estate Co. was this week said to have collapsed with $567 million of debt, adding to concern of strains in the nation’s real estate sector and financial system. This comes after Shanghai Chaori Solar Energy Science & Technology Co. failed to repay its debt, the first onshore corporate-bond default.

Before it's here, it's on the Bloomberg Terminal.