Hong Kong Stocks Extend Slump as Banks, Property Shares Retreat

  • Slowing inflows via link and U.S. rate outlook weigh equities
  • Yuan depreciation reemerging as a concern, Partners says

Hong Kong stocks dropped for a third day, led by financial companies, amid concern that a flood of inflows from the mainland will dry up, the yuan will weaken further and higher U.S. interest rates will weigh on the city’s property market.

The Hang Seng Index closed 0.6 percent lower, capping a 2.3 percent retreat over the three-day period. Bank of Communications Co. and Bank of China Ltd. tumbled at least 2.8 percent. Less than 9 percent of a daily quota for southbound purchases was used up on Wednesday. A measure of Hong Kong real estate companies declined for a sixth day as Sino Land Co. dropped 1.9 percent. The Shanghai Composite Index slipped 0.2 percent.

Hong Kong stocks rallied last month as mainland inflows swelled to a record and investors scaled back bets for higher borrowing costs. Odds of a U.S. rate increase by year-end have since climbed to 67 percent amid speculation a recent surge in oil prices will fuel inflation. China’s central bank weakened the yuan’s reference rate for a sixth day, the longest run of cuts in nine months.

“Southbound flows are trickling down and the size isn’t really up to the market’s expectation, and the yuan’s depreciation pressure is reemerging as a concern,” said Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong. After recent gains, the “Hong Kong market will remain very volatile, even though there won’t be any panic selling.”

Future Land Holdings Co. and Poly Real Estate Group Co. paced declines for property companies in mainland trading. Investor sentiment toward developers has soured as China rolls out measures to cool the nation’s real estate market.

Chinese authorities aim to tighten control on speculative real estate investments and money involved in land transactions, people familiar with the matter said this week. Policy makers in cities such as Nanjing, Shenzhen and Fuzhou have announced measures to contain house-price bubbles, including restrictions on mortgage and down-payment policies.

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