Chinese Stocks Drop in Hong Kong as Fed Spurs Outflow Concern

  • Developers, airlines lead declines on dollar debt costs
  • Shanghai Composite erases gain to close little changed

Chinese stocks traded in Hong Kong fell to the lowest level in more than two months amid concern potentially higher U.S. interest rates will spur capital outflows and hurt the earnings outlook for airlines and property developers.

The Hang Seng China Enterprises Index slid 0.7 percent at the close. China Vanke Co. and Air China Ltd. led declines on speculation a weakening Chinese currency will increase the cost of servicing their dollar-denominated debt. The offshore yuan slid the most since January overnight. The Shanghai Composite Index erased gains to close little changed.

Minutes of the Federal Reserve’s April meeting released Wednesday drove up expectations of a rate increase in June. Rising U.S. rates may exacerbate Chinese capital outflows as global investors look for higher-yielding currencies such as the dollar. Concerns that a weak yuan will exacerbate outflows and the nation’s economy is losing momentum have sent the Hang Seng China Enterprises measure tumbling 11 percent from its April 21 high, the worst performance among global gauges after Namibia.

“A possible rate increase in the U.S. may increase pressure for capital outflows, and that’s weighing on sentiment,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai.

Shanghai Stocks

The H-share gauge fell for a second day to close at 8,243.20, while the Hang Seng Index lost 0.7 percent. The Shanghai Composite slipped less than 0.1 percent to 2,806.91, while the CSI 300 Index lost 0.2 percent.

China Vanke Co. lost 1.8 percent in Hong Kong, while China Overseas Land & Investment Ltd. retreated 1.6 percent and Sino Land Co. declined 0.9 percent. Air China fell 3.7 percent. China Eastern Airlines Corp. lost 3.3 percent. Chinese carriers benefit from a stronger yuan as it pares the repatriated value of dollar-denominated debts used to buy planes and fuel overseas.

In mainland trading, losses for gold producers offset a rally for steelmakers. A stronger dollar reduces the appeal of bullion, which doesn’t generate any interest-rate return. Shandong Gold Mining Co. fell 1.9 percent. Western Region Gold Co. lost 1.1 percent.

Baoshan Iron & Steel Co., China’s second-largest mill by output, gained 0.8 percent. President Xi Jinping this week vowed to press ahead with plans to reduce capacity at state-owned enterprises. The State Council, or cabinet, on Wednesday called for a 10 percent capacity cut at companies managed by the central government.

“The supply-side reform of cutting overcapacity is one of the few bright spots in the market now,” said Dai. “With the economy still in the doldrums, there’s an immediate chance for stocks to rise significantly.”

— With assistance by Shidong Zhang

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