Hong Kong Stocks Drop on Credit Concerns, Crude Oil; HSBC Falls

By Chen Shiyin and Bob Chen

July 29 (Bloomberg) -- Hong Kong stocks fell for a fourth day, on course for their longest losing streak in more than a month, on renewed concern that widening credit-market losses and higher energy costs will dent companies' profits.

HSBC Holdings Plc led financial companies lower after Merrill Lynch & Co. said it will sell $8.5 billion of stock and liquidate some assets. Cathay Pacific Airways Ltd. led losses among airlines after oil prices climbed for a second day. Agile Property Holdings Ltd. dropped as JPMorgan Chase & Co. cut its rating on shares of Chinese property developers.

``The broader market is very weak right now,'' said James Chua, a Singapore-based investment analyst at Phillip Capital Management Ltd., which oversees about $450 million. ``The idea is to try and get a good sense on where earnings will be headed. Within Asia, that's most likely downwards.''

The Hang Seng Index declined 465.69, or 2.1 percent, to 22,221.52 at 2:46 p.m. local time, on course for its largest drop since July 15. The benchmark gauge fell 1.9 percent in the previous three days and is poised for its longest stretch of losses since a four-day retreat ended June 24.

The Hang Seng China Enterprises Index, which tracks so- called H shares of Chinese companies, retreated 2.6 percent to 12,079.09.

East Asia

HSBC Holdings, Europe's largest bank by market value, fell 1.3 percent to HK$126.10, set for its largest loss since July 15. Bank of East Asia Ltd. dropped 3.3 percent to HK$36.20. The company said in February it booked a $140 million loss on $700 million of investments in collateralized debt obligations in the second half of 2007.

Merrill said it will record $5.7 billion of pretax writedowns in the third quarter because of additional losses on collateralized debt obligations. It will also liquidate $30.6 billion of money-losing assets at a fifth of their original value, New York-based Merrill said.

Financial shares also retreated after the International Monetary Fund said there is no end in sight to the U.S. housing slump and warned that worsening credit conditions may prolong the economic slowdown.

The Hang Seng Index has dropped 20 percent this year as the world's largest banks and securities companies reported $468.5 billion of writedowns and credit-market losses and raw-material prices soared.

Oil Climbs

Crude oil for September delivery climbed as much as 0.7 percent to $125.59 a barrel today, adding to yesterday's 1.2 percent advance. Futures climbed to a record $147.27 a barrel on July 11.

Cathay Pacific, Hong Kong's biggest carrier, declined 2.8 percent to HK$14.86. China Southern Airlines Co., the nation's largest airline, dropped 4.2 percent to HK$3.39. China Eastern Airlines Corp., the country's third-largest carrier, slumped 3.1 percent to HK$2.50.

Agile, which develops properties in China, dropped 4.4 percent to HK$7.19. Its rating was cut to ``neutral'' from ``overweight'' by JPMorgan analysts led by Raymond Ngai, citing a slowdown in property sales.

The brokerage also cut its recommendations for Beijing Capital Land Ltd. and Shanghai Forte Land Co. to ``underweight'' from ``neutral,'' and lowered its ratings for C C Land Holdings Ltd. and Zhong An Real Estate Ltd. to ``neutral.''

``Property developers will face a slowdown in the growth of sales volume,'' said Patrick Chow, an analyst at Everbright Securities in Hong Kong, who has an ``underweight'' rating on Chinese real estate companies. ``The mainland China property sector will not rebound in the second half of this year.''

Beijing Capital Land, the property arm of the municipal government, lost 2.8 percent to HK$2.09. Shanghai Forte Land, a Shanghai-based developer listed in Hong Kong, lost 6.7 percent to HK$2.09. C C Land, a developer of real estate in western China, retreated 2.7 percent to HK$4.69. Zhong An slipped 2.4 percent to HK$2.80.

The following shares also rose or fell. Stock symbols are in parentheses after the company names.

China Coal Energy Co. (1898 HK), the nation's second- largest coal producer by sales, lost 42 cents, or 3 percent, to HK$13.58, set for its lowest close since July 9. Credit Suisse Group cut its share-price forecast by 15 percent to HK$22, citing the outlook for policy risks and ``flat'' contract prices. The company said yesterday that first-half profit rose 59 percent on increased output and prices.

Semiconductor Manufacturing International Corp. (981 HK), China's biggest chipmaker, lost 1.5 Hong Kong cents, or 3.5 percent, to 41.5 cents, adding to a three-day, 5.7 percent slump. The company said its second-quarter net loss widened to $45.6 million from $2.1 million a year earlier.

The company forecasts that it will end losses in the fourth quarter on demand for customized chips used in consumer electronics, Chief Executive Officer Richard Chang said on a conference call with analysts today.

Zijin Mining Group Co. (2899 HK), owner of China's largest gold mine, declined 11 cents, or 1.7 percent, to HK$6.32, poised for its lowest close since July 10. The company said yesterday the cost of producing each ounce of gold sold rose 19 percent in the first half because it mined lower-grade ore.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net