Hong Kong’s Hang Seng Posts Biggest 2-Day Fall Since Nov. 2009

Monday, 08 Aug 2011 05:40 AM

 

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Aug. 8 (Bloomberg) -- Hong Kong stocks dropped, sending the benchmark Hang Seng Index to its biggest two-day slide since November 2009, after Standard & Poor’s cut the U.S. credit rating, raising concern global economic growth will slow.

Techtronic Industries Co., maker of Ryobi power tools and Hoover vacuum cleaners, slid 7.4 percent. HSBC Holdings Plc, the U.K.-based lender that made a fifth of its revenue in North America last year, dropped as much as 3.9 percent. Cnooc Ltd., China’s biggest offshore oil producer by market value, fell 4 percent and Aluminum Corp. of China Ltd., the nation’s largest producer of the metal by market value, slumped 2.7 percent after oil and metal prices fell.

The Hang Seng Index fell 2.2 percent to 20,490.57 at the close, posting a 6.4 percent two-day decline. All but five stocks retreated in the 46-member gauge. The index fell as much as 4.3 percent before paring declines following the opening of the European markets. The number of shares traded on the Hong Kong Stock Exchange was 201 billion, compared with a daily average of 162 billion this year through Aug. 5.

“Appetite in the equity market will remain low because the U.S. downgrade is like a wake-up call to all the investors that the aftermath of the corporate financial tsunami is still there, and it will take time to clean up,” said Alex Au, managing director of Richland Capital Management Ltd. in Hong Kong, which oversees about $300 million of assets. “I’m a bit bearish in the medium term.”

Techtronic Drops

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong plunged 2.8 percent to 11,113.45 ahead of the release tomorrow in Beijing of key economic reports, including the July consumer price index, which is expected to rise 6.4 percent, according to the average estimate of economists surveyed by Bloomberg. Producer prices and industrial production are also set to be released tomorrow.

Techtronic tumbled 7.4 percent to HK$7.25. HSBC retreated as much as 3.9 percent to HK$69.85, the biggest drag on the Hang Seng Index. Li & Fung Ltd., a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., sank 2.2 percent to HK$11.78.

Futures on the Standard & Poor’s 500 Index lost 1.7 percent today. In New York on Aug. 5, the S&P 500 slid 0.1 percent as optimism Europe will take steps to contain its debt crisis failed to offset concern about an economic slowdown.

Standard & Poor’s lowered the U.S. government’s AAA credit rating on Aug. 5 by one level to AA+ in response to the deal that President Barack Obama and lawmakers reached to raise the federal $14.3 trillion debt limit. The credit-rating cut was announced after the market closed in New York.

The Downgrade

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in its statement.

The Hang Seng Index sank 6.7 percent last week as exporters and commodity stocks tumbled amid a global equity rout triggered by signs the world economy is weakening. Shares on the index traded at 11 times forecast earnings, the lowest level since March 2009. That compares with a 7.2 percent drop by the S&P 500 for the week, with shares traded at 12 times forecast earnings.

Hong Kong stocks also fell as China’s central bank raised its reference rate for the yuan by 0.23 percent to 6.4305 per dollar, the biggest gain since November. The currency is allowed to trade as much as 0.5 percent on either side of the daily fixing, which was set at the strongest level since a dollar peg ended in 2005.

Inflation Dilemma

“The increase has a negative impact on the exporters, but China also has to curb inflation, so it needs to strike a balance,” said Ben Kwong, chief operating officer at KGI Asia Ltd.

Cnooc dropped 4 percent to HK$14.92, while PetroChina Co., Asia’s biggest company by market value, declined 3.1 percent to HK$10.04. Aluminum Corp. of China tumbled 2.7 percent to HK$5.88, and United Co. Rusal, a Russia-based producer of the metal, slumped 4.3 percent to HK$8.85.

Crude oil for September delivery sank as much as 4.3 percent in New York today amid concern an economic slowdown in the U.S., the world’s largest crude consumer, will worsen and cut fuel demand. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum sank 3.7 percent on Aug. 5.

‘Pain Relief’

The Hang Seng Index pared declines after European stocks reversed their losses. European Central Bank bought Italian and Spanish government bonds, according to five people with knowledge of the transactions. The benchmark Stoxx Europe 600 Index rose as much as 0.8 percent.

“The European equity market seems relatively stable, triggering short covering and bargain hunting in the late trading session” in Hong Kong, KGI’s Kwong said. Bond buying by the ECB is “important in easing investor worries about the euro-debt crisis and relieving some of our pains.”

Futures on the Hang Seng Index dropped 1.7 percent to 20,390. The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, gained 6.1 percent to 35.93, indicating options traders expect a swing of 10 percent in the Hang Seng Index in the next 30 days.

--Editors: John McCluskey, Jason Clenfield.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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