Hong Kong’s HSCEI May Drop 40%, Bank of America Says

By Lu Wang

Feb. 4 (Bloomberg) -- Hong Kong’s Hang Seng China Enterprises Index may drop 40 percent, extending a 15-month slump, as earnings growth stalls amid an economic slowdown, according to Bank of America Corp.

The benchmark, which tracks PetroChina Co. and 42 other mainland companies listed in Hong Kong, may decline to 4,200 in the first half of this year, predicted David Cui, the China strategist for Bank of America’s Merrill Lynch & Co. unit. The last time the index touched that level was in August 2004.

It’s “a long way from a bull market,” Hong Kong-based Cui wrote in a note to clients. Stocks may trade in a range “for a few years until a prospect of economy and corporate earnings resuming decisive healthy growth is in sight.”

The HSCEI, which closed at 6,960.11 yesterday, tumbled 66 percent since setting a record in October 2007. China faces its slowest economic growth in almost two decades, threatening to erode earnings at companies including PetroChina, the country’s biggest oil producer.

Analysts may reduce their profit forecast for the index’s companies by at least 20 percent after first-quarter results are announced, he said.

“We expect a poor recording card,” Cui said.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net