Hong Kong Stocks Drop, Set for Worst First Half Since 1994

By Hanny Wan and Iris Leung

June 27 (Bloomberg) -- Hong Kong stocks fell, setting the benchmark index on course for its worst first half in 14 years, on concern record oil prices will raise fuel costs and widening credit market losses will erode economic growth and profits.

Foxconn International Holdings Ltd., the world's biggest contract maker of mobile phones, plunged for a second day, to the lowest in more than two years. China Petroleum & Chemical Corp., Asia's biggest oil refiner, and known as Sinopec, slumped the most in two weeks as oil surpassed $140 a barrel.

``There are two main issues worrying the market: Inflation risks have been intensified by further oil-price increases, while fears over the credit crunch are heightening,'' said Winson Fong, a fund manager at SG Asset Management Hong Kong Ltd., which oversees $3 billion in Asia outside Japan. ``Investors see no improvement on the two issues so far, and there are too many uncertainties for them to stay in the market.''

The Hang Seng Index lost 515.05, or 2.3 percent, to 21,940.62 at 11:56 a.m. local time, widening its loss this year to 21 percent. All stocks retreated on the 43-member measure, setting the gauge up for its worst six months to June since a 26 percent drop in the first half of 1994.

The Hang Seng China Enterprises Index, which tracks so- called H shares of mainland Chinese companies, fell 2.8 percent to 11,762.70, headed for its lowest close since March 25.

Crude Climbs

Foxconn tumbled 7.8 percent to HK$8.04, adding to a 5.3 percent drop yesterday and set for its lowest close since Oct. 28, 2005. Li & Fung Ltd., which sells goods to Wal-Mart Stores Inc., retreated 6 percent to HK$23.50, headed for its worst close since Jan. 22. Sinopec fell 4.4 percent to HK$7.26, its biggest decline since June 10. The shares were the Hang Seng Index's top three percentage losers today.

Crude oil futures climbed 3.8 percent to $139.64 a barrel in New York yesterday, a record settlement price, after reaching $140.39. The contract was recently at $139.01 in after-hours trading.

Merrill Lynch & Co., the third-largest U.S. securities firm, may report $4.2 billion in second-quarter writedowns, Goldman Sachs Group Inc. said yesterday. Citigroup Inc. may post an $8.9 billion writedown and options trading indicates the biggest U.S. bank by assets may cut its dividend by about 40 percent, Goldman said.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net