Hong Kong Stocks Drop as U.S. Economy Shrinks, Commodities Fall

By Shani Raja

March 2 (Bloomberg) -- Hong Kong stocks fell for the third- straight day, led by exporters and materials companies, as the U.S. economy contracted at the fastest pace in more than 25 years and commodity prices dropped.

Li & Fung Ltd., the biggest supplier of toys and clothing to Wal-Mart Stores Inc. and Target Corp., slumped 6.2 percent. Aluminum Corp. of China, seeking approval for a $19.5 billion investment in Rio Tinto Group, dropped 6 percent. Cnooc Ltd., the biggest Chinese offshore oil producer, lost 5.9 percent after oil retreated. Hang Seng Bank Ltd., the biggest Hong Kong-based bank by market value, dipped 4.4 percent.

“U.S. economic data confirms that things are still accelerating on the downside,” said Nader Naeimi, an investment strategist at AMP Capital Investors in Sydney, which manages about $85 billion. “You’re seeing generalized weakness, where banks are under pressure and commodities have fallen off.” AMP Capital owns shares in Hong Kong.

The Hang Seng Index slumped 3.8 percent to 12,321.04 as of the 12:30 p.m. local-time break, the biggest drop since Dec. 12. The Hang Seng China Enterprise Index, which tracks so-called H- shares, slumped 4.7 percent to 6,576.59.

The Hang Seng Index has lost 14 percent this year, dragging its valuation to 10 times estimated earnings, down from 18.7 times at the beginning of 2008.

GDP Contracts

Li & Fung fell 6.2 percent to HK$16.16. Esprit Holdings Ltd., Hong Kong’s biggest listed clothing retailer, declined 4.6 percent to HK$40.30.

The Standard & Poor’s 500 Index lost 2.4 percent to a 12- year low on Feb. 27 after the Commerce Department said the U.S. economy shrank at a 6.2 percent annual pace in the three months to December, the most since 1982. GDP was projected to contract 5.4 percent, according to the median of 74 estimates in a Bloomberg News survey.

Aluminum Corp., or Chinalco, fell 6 percent to HK$3.48. The metal dropped 1.6 percent to $1,342.25 a ton on Friday, and slipped a further 0.9 percent today. Separately, a measure of six primary metals traded in London declined 1.3 percent.

Cnooc shares dived 5.9 percent to HK$6.40. China Petroleum & Chemical Corp., Asia’s biggest refiner, dipped 4.7 percent to HK$3.86. China Shenhua Energy Co., China’s biggest coal company, slumped 6.6 percent to HK$14.38.

Oil dropped as much as 2.4 percent on the New York Mercantile Exchange on concern energy demand will decline after the U.S. economy contracted faster than anticipated. Power- station coal prices at Australia’s Newcastle port, a benchmark for Asia, last week declined 14 percent to the lowest level since the week ended June. 15.

Banks Drop

Hang Seng Bank, which said after the lunch break that profit declined 46 percent, lost 4.4 percent to HK$83.20. Bank of China Ltd., the nation’s No. 3 lender, fell 3.2 percent to HK$2.10. Trading in shares of HSBC Holdings Plc, Europe’s biggest bank, was halted amid speculation it will raise $17 billion to bolster capital.

“Investors once again are starting to speculate who will be next to go belly up, who will need to raise capital and how much more is to be written off from banks’ books,” said Naeimi.

Hong Kong Exchanges & Clearing Ltd. dropped 7.4 percent to HK$57.90 after Morgan Stanley cut its price estimate on the stock by 13 percent to HK$33, saying the shares are too expensive relative to profit.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.