Hong Kong Shares Slip to Two-Month Low as Mainland Buying Tapers

  • Big players from across border selling stocks: strategist
  • Coal stocks lead weekly gain on mainland on supply worries

Hong Kong stocks fell to a two-month low, with declines accelerating in afternoon trading, as buying through an exchange link slowed and the valuation gap with mainland shares narrowed.

The Hang Seng Index closed 0.8 percent lower, extending a weekly loss to 1.8 percent. China Resources Power Holdings Co. and China Life Insurance Co. dropped more than 2.6 percent to lead the decline after Hong Kong shares traded at their smallest discount against mainland peers in almost two years earlier this month. The Shanghai Composite Index also retreated, paring a weekly gain.

“Big players from the mainland are selling shares for profit at the current high level and no newcomers are willing to buy now,” said Cliff Zhao, a strategist at China Merchants Securities HK Co. “The appeal of Hong Kong stocks is fading after the almost year-long rally. The correction will probably last until December.”

The Hong Kong gauge has slipped 4.8 percent since reaching a 13-month high in September as inflows through a trading link with Shanghai slowed to about $1 billion so far in October, from a record $8 billion last month. The index is now valued at 12.4 times reported earnings, compared with a low of 9 times in February.

The Hang Seng Index closed at 22,954.81 on Friday, the lowest since Aug. 29. The Shanghai Composite dropped 0.3 percent to 3,104.27 at the close. In Taiwan, the Taiex gauge ended 0.1 percent higher.

Bank of East Asia Ltd. lost 2.1 percent in Hong Kong. Cnooc Ltd. dropped 1.6 percent and China Life lost 2.6 percent even after reporting higher third-quarter profit.

In mainland trading, the Shanghai Composite posted a third weekly advance as coal producers paced gains among equities on optimism supplies will remain strained as the government steps up efforts to cut excess capacity in the industry. Shaanxi Coal Industry Co. and China Coal Energy Co. both surged 12 percent for the week.

Guotai Junan Securities Co. added 0.5 percent on Friday after reporting Thursday that third-quarter net income rose from last year. Soochow Securities Co. advanced 1.2 percent after earlier reporting that net income jumped 79 percent from a year ago.

Trading volumes in Shanghai were 16 percent above the 30-day average. Still, turnover on the benchmark gauge is down more than 84 percent from the peak in June last year before the stock bubble popped, causing a $5 trillion rout.

A gauge of financial shares advanced 0.5 percent, the biggest gainer among the 10 industry groups on the CSI 300 Index. Huatai Securities Co. jumped 2.5 percent, and Sinolink Securities Co. added 1 percent.

China Construction Bank Corp. climbed 0.6 percent in Shanghai. The lender reported a 1.3 percent gain in third-quarter earnings by letting its bad-loan buffer fall below a regulatory minimum. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender by assets, added 0.5 percent. ICBC is to release its earnings after the market closes.

New ’Core’

China’s Communist Party wrapped up a major four-day meeting on Thursday, while the state-run Xinhua News Agency cited an official communique as saying the ruling party declared Xi Jinping its "core." Zhang Lifan, a Beijing-based historian, said the new title "technically gives him absolute power inside the party."

Iris Pang, senior economist for Greater China at Natixis Asia Ltd. in Hong Kong, said the market reforms Xi has called for are still on the table. "The ideas of Xi being the even more centralized power of the central government and market reform can co-exist," she said.

An official manufacturing Purchasing Managers’ Index for October will remain above 50 when it is released on Nov. 1, according to the median estimate of a Bloomberg survey. That would be the third straight month of expansion.

— With assistance by Shidong Zhang

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