Hong Kong Stocks Drop as Developers Slide Ahead of Fed

Hong Kong stocks dropped, with the city’s benchmark index falling for a third day, as Chinese developers declined and investors awaited the Federal Reserve’s monetary policy announcement today.

Evergrande Real Estate Group Ltd. dropped 1.8 percent after home prices in half the Chinese cities tracked by the government declined. Wynn Macau Ltd. sank 3.4 percent after Morgan Stanley lowered its 2014 revenue growth forecast for Macau casinos. Chow Tai Fook Jewellery Group Ltd. climbed 5.8 percent after posting higher full-year profit. Coolpad Group Ltd. jumped 7.3 percent after the smartphone maker said it had the biggest share of China’s 4G handset market last month.

The Hang Seng Index slid 0.1 percent to 23,181.72 at the close after rising as much as 0.4 percent. Trading volume was about 8.1 percent below the the 30-day average. The Hang Seng China Enterprises Index, also known as the H-share index, fell 0.2 percent to 10,444.41.

“There isn’t much trading interest in the market as the World Cup is driving away investors,” Jackson Wong, vice-president at Tanrich Securities Co. in Hong Kong, said by phone. “Valuations in Hong Kong are very cheap, as it has lagged behind other developed markets.”

Futures on the Standard & Poor’s 500 Index were little changed today. The U.S. equity benchmark added 0.2 percent yesterday as smaller companies rallied.

World Cup

Average daily trading volume on the Hong Kong bourse fell to HK$53.9 billion so far this month, compared with an average HK$65.9 billion in the five months through May 31, according to data compiled by Bloomberg. The month-long World Cup kicked off in Brazil on June 12.

Trading was also light ahead of a Federal Reserve decision today at which the bank is expected to announce a stimulus reduction. Data yesterday showed inflation quickened in May by the most in more than a year.

U.S. Tightening

“All measures of consumer inflation in the U.S. were slightly higher than expected,” Scott Schuberg, chief executive officer at Rivkin Securities in Sydney, said by e-mail. This will “no doubt get the U.S. Federal Reserve talking a little more hawkishly about the potential for an interest-rate rise.”

Hong Kong’s benchmark index rebounded 9.4 percent after falling to an eight-month low in March, as manufacturing showed signs of strength and China introduced stimulus to counter an economic slowdown. The equity gauge traded at 10.7 times estimated earnings today, compared with 16.4 for the S&P 500 yesterday.

Home prices in China fell in 35 of the 70 cities last month from April, according to a statement by the National Bureau of Statistics today, the most since May 2012.

Evergrande Real Estate dropped 1.8 percent to HK$3.04. Country Garden Holdings Co., controlled by billionaire Yang Huiyan, slid 1.9 percent to HK$3.08. Soho China Ltd., the biggest developer in Beijing’s central business district, decreased 2 percent to HK$5.99.

Property Risks

The surplus of empty units in China’s real-estate sector jeopardizing Premier Li Keqiang’s mini-stimulus aimed at arresting a slowdown that threatens this year’s 7.5 percent growth target. While the central bank last month called on lenders to accelerate mortgage approvals, the government has refrained from broad-based easing of property restrictions imposed over the last four years to rein in prices.

“Property remains the biggest macro risk in the near term,” Zhu Haibin, Hong Kong-based chief China economist at JPMorgan Chase & Co., wrote in a note to clients today.

Casino Revenue

Morgan Stanley cuts its Macau gambling revenue growth estimate to 12 percent for 2014. Wynn Macau, which the brokerage downgraded to underweight, sank 3.4 percent to HK$27.10. Galaxy Entertainment Group Ltd. lost 1.2 percent to HK$56.10. SJM Holdings Ltd., founded by gambling mogul Stanley Ho, dropped 2.2 percent HK$18.68.

Among shares that rose, Chow Tai Fook jumped 5.8 percent to HK$11.66, the highest close since April 10. after saying profit jumped 32 percent last fiscal year, driven by sales of gold in China. The stock was recommended by JPMorgan Chase & Co.

Coolpad surged 7.3 percent to HK$1.90. The company had a 23 percent share of the 4G handset market in China, topping Samsung Electronics Co.’s 19 percent and Apple Inc.’s 16 percent, Coolpad said, citing data from SINO market research.

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