Hong Kong Stocks Gain on Citigroup Report; Li & Fung Advances

By Hanny Wan

Feb. 23 (Bloomberg) -- Hong Kong stocks rose on expectations the U.S. government will raise its stake in Citigroup Inc., reducing the risk of bank failures.

HSBC Holdings Plc, a bank that gets a quarter of its revenue in North America, added 1.3 percent. Li & Fung Ltd., the biggest supplier of toys and clothing to U.S.-based Wal-Mart Stores Inc., gained 4.1 percent, on speculation demand for its products can be sustained. Sun Hung Kai Properties Ltd., the city’s No. 1 developer by market value, climbed 2 percent after saying it will raise prices for a project.

“It’s the right move” for the U.S., said Winson Fong, who helps oversee $2 billion at SG Asset Management Hong Kong Ltd. “This should have happened much earlier. To rescue a bank, you need to give it more capital.”

The Hang Seng Index added 256.37, or 2 percent, to 12,955.54 as of 11:28 a.m. local time. The Hang Seng China Enterprise Index, which tracks so-called H-shares, rose 1.4 percent to 7,164.90.

The main Hang Seng Index has lost 10 percent this year as mounting signs of an economic slowdown dragged its valuation to 10 times estimated earnings, down from 18.7 times at the beginning of 2008.

HSBC, which owns a mortgage business in the U.S., added 1.3 percent to HK$55.50. Li & Fung jumped 4.1 percent to HK$16.76.

Government Ownership

Citigroup, the recipient of $45 billion in U.S. government aid, is in talks with federal officials that may increase state ownership of the bank to as much as 40 percent of its common stock, the Wall Street Journal said, citing people familiar with the situation whom it didn’t identify. Citigroup proposed that the government convert a large portion of its preferred shares into common stock, the Journal reported.

Banks may have to be nationalized for “a short time” to help lenders such as Citigroup survive the worst economic slump in 75 years, Senate Banking Committee Chairman Christopher Dodd said on Feb. 20.

“It’s a matter of time before governments, not just the U.S., but also European governments, become real equity owners of these banks,” Fong said. “Owning preferred shares doesn’t make the governments the real owners. That doesn’t really help. It only increases the banks’ debt, instead of giving them more capital.”

Sun Hung Kai climbed 2 percent to HK$61.40. The company is raising prices for the Cullinan, a new luxury residential project, by 5 percent after selling 150 units in 10 days. Henderson Land Development Co., a Hong Kong-based developer, rose 3.3 percent to HK$25.45.

Hang Lung

Hang Lung Properties Ltd., a Hong Kong-based developer which also invests in mainland China, surged 5.6 percent to HK$14.42. China Overseas Land & Investment Ltd., a developer controlled by China’s construction ministry, rose 3 percent to HK$10.84.

China is devising a stimulus plan for the real-estate industry, which will replace energy as the 10th sector to get a stimulus program, Shanghai Securities News said, citing Cheng Siwei, a former vice-chairman of the China National People’s Congress, without elaboration.

The China Securities Journal said the government may remove restrictions on the purchase of second-hand homes and cut taxes on transactions to stimulate the housing market, citing an unnamed source.

All but five stocks on the 42-member Hang Seng Index advanced. February futures climbed 2.5 percent to 12,960.

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