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Hong Kong Stocks Fall Most in Six Months on Korea Shelling

Wednesday, Nov 24, 2010
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Nov. 23 (Bloomberg) -- Hong Kong stocks extended declines after North and South Korea exchanged fire, sending the benchmark index down by the most in six months. Shares earlier fell amid concern China will step up measures to curb inflation.


Standard Chartered Plc, which received 10 percent of its 2009 revenue from South Korea, slid 2.9 percent. Cnooc Ltd., China’s biggest offshore oil explorer, lost 3.4 percent. China Construction Bank Corp., the nation’s second-biggest lender, dropped 2.5 percent after the China Business News cited the banking regulator as saying lenders still face “severe” risks.


“Although Hong Kong isn’t directly affected by what happens between North and South Korea, geopolitical uncertainties weigh on sentiment in regional markets,” said Castor Pang, Hong Kong-based research director at Cinda International Holdings Ltd.


The Hang Seng Index slipped 2.7 percent to close at 22,896.14, its biggest drop since May 25. Declines widened as South Korea scrambled fighter jets and returned fire after North Korea lobbed dozens of shells into its waters and an island, injuring 14 soldiers.


Standard Chartered, the U.K. bank that earns about three- quarters of its profit in Asia, fell 2.9 percent to HK$219.


The Hang Seng China Enterprises Index of so-called H shares of Chinese companies lost 2.9 percent to 12,817.32.


China’s government must, when necessary, “temporarily” intervene in prices, the People’s Daily newspaper said in an editorial published on its front page today.


Cnooc dropped 3.4 percent to HK$17.10. PetroChina Co., the country’s biggest oil and gas producer, lost 3.3 percent to HK$9.44.


Crude Oil Falls


Crude oil futures declined 0.3 percent to $81.74 yesterday. Crude for January delivery fell as much as 84 cents, or 1 percent, to $80.90 a barrel in electronic trading on the New York Mercantile Exchange. It was at $81.18 at 4:22 p.m. Hong Kong time.


Jiangxi Copper Co., China’s largest producer of the metal, fell 3.8 percent to HK$22.85. Aluminum Corp. of China Ltd., the nation’s biggest maker of the lightweight metal, slid 2.4 percent to HK$7.05.


The London Metal Exchange Index of prices for six industrial metals including copper and aluminum fell 0.9 percent yesterday.


Action on Prices


Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food.


The People’s Bank of China has raised its benchmark interest rates once this year, and asked banks to scale back lending and lift reserve ratios.


The central bank will raise the benchmark one-year deposit and lending rates by year-end, from the current levels of 5.56 percent and 2.5 percent, according to a Bloomberg News survey of nine economists last week.


“China has sent a clear message to the market with its recent moves that it’s determined to combat inflation,” said Danny Yan, a Hong Kong-based fund manager at Haitong International Asset Management, which oversees about $400 million. “Interest-rate rises aren’t necessarily a bad thing because that indicates an underlying strength of the economy, and the need to absorb liquidity.”


China Banks Slide


The Hang Seng Index gained 7.6 percent this year through yesterday as corporate earnings and positive economic data eased concern global growth may stall because of Europe’s debt crisis and China’s steps to curb property prices. Shares in the gauge traded at an average 14.4 times estimated earnings, compared with about 17.2 times at the start of the year.


Construction Bank declined 2.5 percent to HK$7.05. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender by market value, fell 2.3 percent to HK$5.90.


Chinese banks still face “severe” risks because of the “difficult” global economic recovery and the “arduous” task of domestic structural adjustments, the China Business News reported, citing a circular that the China Banking Regulatory Commission issued to its local branches and banks.


BaWang International Group Holding Ltd., a shampoo maker, plunged 6 percent to HK$3.15 after saying sales from July to October this year fell about 31 percent from a year earlier because of a report of contamination in its shampoo, and this may cause full-year earnings to decline substantially.


Hanny Holdings Ltd., which trades securities and develops property, tumbled 9.2 percent to 39.5 Hong Kong cents after saying it will report a loss for the six months ended Sept. 30.


Li & Fung Ltd. declined 2.3 percent to HK$43 after the biggest supplier to retailers including Wal-Mart Stores Inc. agreed to buy Oxford Industries Inc.’s apparel division for $121.7 million.


All 45 members of the Hang Seng Index declined. Futures on the gauge fell 2.7 percent to 22,951.


--Editors: John McCluskey, Nick Gentle.

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