Hong Kong Stocks Decline as G-7 Chiefs See Prolonged Slump

By Patrick Rial

Feb. 16 (Bloomberg) -- Hong Kong stocks retreated after Group of Seven finance chiefs predicted the global economic slump will persist through most of this year and Japan’s economy contracted at the fastest pace in 35 years.

Bank of East Asia Ltd., Hong Kong’s third-biggest bank by assets, lost 4.6 percent ahead of an earnings announcement due tomorrow. Melco International Development Ltd. slumped 6.3 percent after saying it will likely report a “substantial loss” for 2008.

The Hang Seng Index dropped 262.59, or 1.9 percent, to 13,292.08 as of 11:08 a.m. local time. The Hang Seng China Enterprise Index, which tracks so-called H-shares, declined 1.9 percent to 7,424.96.

“There are slight signs of a recovery in China and related areas, but the rest of the world still seems to be slowing,” said Yoji Takeda, who manages about $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. “You cannot deny the possibility that stocks will break through last year’s lows.”

The Hang Seng Index has slumped 7.5 percent this year. The gauge dropped 48 percent in 2008, the steepest annual decline since the oil shock in 1974, as the credit crisis dragged the world’s biggest economies into recession.

Bank of East Asia dropped 4.6 percent to HK$15.48. The company will report almost no profit in 2009, according to a report last week from Morgan Stanley.

‘Difficult’ 2009 Seen

HSBC Holdings Plc, Europe’s biggest bank, lost 3.2 percent to HK$59.05. Hang Seng Bank Ltd., a unit of HSBC, dropped 4 percent to HK$85.20.

Hong Kong banks face a difficult year as lending slows and demand for investment products weakens in an economy that is moving deeper into its first recession since 2003, the city’s defacto central bank said on Feb. 13.

“2009’s operating environment will inevitably be difficult,” Y.K. Choi, deputy chief executive officer of the Hong Kong Monetary Authority, told reporters at a briefing on Feb. 13. “Some banks may see red.”

Melco tumbled 6.3 percent to HK$2.07. The company controlled by the son of Macau gaming tycoon Stanley Ho expects to report a “substantial loss” for 2008 following a collapse in global stock markets and a slowdown in Macau gambling.

All but three stocks on the Hang Seng Index slumped. February futures dropped 1.5 percent to 13,330.

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

Aluminum Corp. of China Ltd. (2600 HK) lost 2.5 percent to HK$4.22. Rio Tinto Group investors have encouraged BHP Billiton Ltd. to restart a takeover bid after Aluminum Corp. of China, the nation’s biggest producer of the metal, agreed to invest $19.5 billion in debt-laden Rio, the Sunday Telegraph said.

China Mengniu Dairy Co. (2319 HK) jumped 4.1 percent to HK$10.58. The country’s biggest liquid-milk producer said China’s health and food safety regulators found that use of a substance in one of its premium-brand milk products isn’t harmful to human health.

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