Hong Kong Stocks Fall on Profit Concern; Cosco Holdings Drops

By Chua Kong Ho

Sept. 9 (Bloomberg) -- Hong Kong stocks fell, paring the benchmark index's biggest gain in more than five months, as downgrades on Chinese banks and developers and slumping shipping rates renewed concern that corporate profit growth will decline.

China Construction Bank Corp., the nation's second largest, lost 1.6 percent after Goldman, Sachs & Co. downgraded Chinese banks. Finance stocks rose the most since March yesterday after the U.S. took over Fannie Mae and Freddie Mac. China Overseas Land & Investment Ltd. sank 3.2 percent after Credit Suisse Group cut its rating. China Cosco Holdings Co. lost 7.6 percent after a measure of shipping rates dropped.

``Yesterday's rally wasn't sustainable as ultimately the U.S. government rescue of Fannie and Freddie doesn't make people go out and buy more houses,'' said Daphne Roth, Singapore-based head of equity research in Asia at ABN Amro Private Bank, with about $30 billion of Asian assets. ``The slowdown emanating from the U.S. has spread to the rest of the world.''

The Hang Seng Index fell 303.16, or 1.5 percent, to 20,491.11 at the close. Ten of the 11 industry groups on the broader Hang Seng Composite Index slipped, with financial companies contributing a fifth of the drop. The Hang Seng Index has lost 26 percent this year as a global economic slowdown and more than $500 billion in writedowns and credit losses hurt corporate earnings. Futures slid 1.4 percent to 20,442 today.

Construction Bank fell 1.6 percent to HK$6.10. Bank of Communications Co., China's fifth largest, dropped 4.3 percent to HK$8.54, while Industrial & Commercial Bank of China Ltd. slumped 1 percent to HK$5.23.

`Macro Headwinds'

Goldman Sachs cut its rating on China banks to ``neutral'' from ``attractive.'' It also lowered its 2009 and 2010 earnings estimates by 6 to 7 percent on average, analysts led by Ma Ning wrote in a research note today.

Chinese banks face ``macro headwinds'' including increasing risk of bad loans among property developers, the analysts wrote. ABN Amro's Roth, who is maintaining a ``neutral'' weighting on China, said she is ``increasingly cautious'' about Chinese banks as they ``are not immune'' to a slowdown.

China Overseas Land, controlled by the nation's construction ministry, sank 3.2 percent to HK$11.52. Guangzhou R&F Properties Co., the biggest real-estate developer in the southern Chinese city, dropped 8.5 percent to HK$11.20. Shimao Property Holdings Ltd., which develops real estate projects in China, declined 7.6 percent to HK$6.73. Credit Suisse reduced its stock ratings on the companies to ``neutral'' from ``outperform.''

``We expect further property price declines and believe that direct policy relaxation on the sector is unlikely in the near term,'' Credit Suisse analysts wrote today.

China Cosco

China Cosco, the world's biggest operator of iron-ore and coal vessels, dropped 7.6 percent to HK$11.70. China Shipping Development Co., which ships crude oil and coal, tumbled 8.7 percent to HK$13.90. Sinotrans Shipping Ltd., a bulk shipping operator, fell 3.9 percent to HK$2.74.

The Baltic Dry Index, a measure of shipping costs for commodities, fell for a 14th straight session, dropping 3 percent to 5,492, the lowest since June 2007, on weaker Chinese demand for iron ore.

The Hang Seng China Enterprises Index, which tracks so- called H shares of Chinese companies, declined 2.8 percent to 10,825.25.

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

Agile Property Holdings Ltd. (3383 HK), a Guangdong province-based developer, declined HK$0.32, or 6.5 percent, to HK$4.60. UBS AG cut its price estimate to HK$6.90 from HK$17.50.

Hong Kong Aircraft Engineering Co. (44 HK), which maintains and overhauls commercial aircraft, gained HK$2.10, or 2.4 percent, to HK$90.60, after UBS AG raised its target price to HK$94.80 from HK$86 and lifted its rating to ``neutral'' from ``sell.''

Hopson Development Holdings Ltd. (754 HK), a property developer controlled by Chinese billionaire Zhu Mengyi, fell HK$0.43, or 6.8 percent, to HK$5.90. Credit Suisse cut its rating to ``underperform'' from ``neutral.''

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net