Hong Kong Stocks Tumble as Economic Outlook Dims; Banks Decline

By Patrick Rial

Jan. 20 (Bloomberg) -- Hong Kong stocks dropped, dragging the benchmark index to the lowest level in almost two months, as a forecast of record losses by Royal Bank of Scotland Group Plc intensified concern the global economic slump is worsening.

HSBC Holdings Plc, Europe’s largest bank, lost 6.7 percent as the U.K. widened a bailout of RBS and Societe Generale SA advised investors to sell the stock. Foxconn International Holdings Ltd., the world’s biggest contract maker of mobile phones, plunged 6.6 percent after saying 2008 profit fell. Sun Hung Kai Properties Ltd. slid 3 percent as Fitch Ratings said the city’s residential real estate market faces a downturn.

“The global economy is going to remain weak,” said Michiya Tomita, a Hong Kong-based fund manager of Chinese stocks at Mitsubishi UFJ Asset Management Co., which oversees $61 billion. “The effect of the U.S. and European financial problems are being felt here because HSBC carries such a strong weight in equity indexes.”

The Hang Seng Index dropped 183.34, or 1.4 percent, to 13,156.65 as of 2:56 p.m., set for the lowest close since Nov. 25. The benchmark earlier slumped as much as 3.9 percent. The Hang Seng China Enterprises Index, which tracks Chinese companies’ so-called H shares, retreated 1.7 percent to 7,120.32.

The Hang Seng Index lost 48 percent last year, its worst annual performance since 1974, as the financial crisis pulled economies worldwide into recession. The gauge has retreated 8.7 percent so far in 2009. Analysts have cut profit estimates by 12 percent in the last 12 months for companies in the benchmark, according to data compiled by Bloomberg.

Unemployment Rate

Denise Yam, an economist at Morgan Stanley, lowered her gross domestic product forecast for Hong Kong to minus 3.8 percent for 2009 because waning global demand will reduce exports. Hong Kong’s unemployment rate climbed to 4.1 percent for the latest quarter, the highest level in 15 months, the government said yesterday.

HSBC lost 6.7 percent to HK$58.10, headed for the lowest level since October 1998. Patrick Lee, an analyst at Societe Generale, rated the bank’s U.K.-traded stock “sell” in new coverage, saying it may have as much as $50 billion in U.S. loan losses and be forced to cut its dividend.

Standard Chartered Plc, a British bank that gets about two- thirds of its revenue in Asia, slumped 5.5 percent to HK$86.40.

RBS said yesterday it may post a loss of as much as 28 billion pounds ($41 billion) this year, which would be the biggest loss in U.K. corporate history. The lender’s shares plunged 67 percent as the U.K. agreed to swap preference shares it holds in the lender for common stock.

Sun Hung Kai

Foxconn fell 6.6 percent to HK$2.81. The company said yesterday it had a “significant decline” in 2008 profit as demand and prices for mobile phones slumped.

Sun Hung Kai Properties, Hong Kong’s biggest developer, lost 3 percent to HK$65.45. Hopson Development Holdings Ltd., a Hong Kong-based property developer controlled by Chinese billionaire Zhu Mengyi, declined 6.9 percent to HK$3.81.

“Rising unemployment, a decelerating local economy, and a tightened credit cycle are significant disincentives for potential property buyers,” Michael Wu, a director at Fitch, said in a report from the agency.

The following stocks rose or fell. Stock symbols are in brackets after company names.

China National Resources Development Holdings Ltd. (661 HK) slumped 1.1 cents, or 5.1 percent, to 20.7 cents. The mining investor expects to swing to a loss for the six months ended Oct. 31, 2008, due to securities trading and changes in fair value accounting.

Industrial & Commercial Bank of China Ltd. (1398 HK) dropped 13 cents, or 3.8 percent, to HK$3.32. The New York Post reported American Express Co. plans to sell its $500 million stake in the bank as soon as restrictions on selling the shares are removed in three months.

Kingway Brewery Holdings Ltd. (124 HK) slid 4 cents, or 5.8 percent, to 65 cents. The Chinese beer company partly owned by Heineken NV said it expects to report a wider 2008 loss after sales fell and raw-materials prices increased.

Norstar Founders Group Ltd. (2339 HK) was suspended. The Chinese maker of car brakes and suspensions halted its shares after reporting a loss of at least HK$44 million ($5.7 million) on wrong-way currency bets and a court froze company accounts.

PCCW Ltd. (8 HK) climbed 12 cents, or 3 percent, to HK$4.11. Shareholders of Hong Kong’s biggest phone carrier should accept an increased buyout offer from Chairman Richard Li and his co- bidder, said Institutional Shareholder Services Inc., the biggest U.S. proxy advisory firm.

TPV Technology Ltd. (903 HK) plunged 17 cents, or 9 percent, to HK$1.73. The world’s biggest contract maker of computer screens fell to the lowest in more than a month after saying profit may have slumped “significantly” in 2008 because of the global recession and losses related to the depreciation of Brazil’s real.

To contact the reporter on this story: Patrick Rial in Tokyo at prial@bloomberg.net.