Hong Kong shares have worst loss in 6 wks, China still at 3-1/2 year lows

Wed Sep 5, 2012 5:04am EDT

* HSI down 1.5 pct, CSI300 slips 0.2 pct

* HK turnover best in more than three weeks

* Lenovo hit by NEC stake sale, ends below deal price range

* Minsheng Bank dives, JP Morgan adds to downgrade gloom

By Clement Tan

HONG KONG, Sept 5 (Reuters) - Hong Kong shares suffered their worst day in more than six weeks on Wednesday, dragged by the growth-sensitive Chinese banking and energy sectors after brokerage downgrades and falling coal prices compounded fears of an anemic mainland economy.

China Minsheng Bank lost almost 4 percent each in Hong Kong and Shanghai, hit by a JP Morgan downgrade on concerns that it could suffer more than state-owned banks because of its dependence on corporate deposits.

Mainland Chinese markets were also weaker, hovering at their lowest levels since early 2009, but outperforming Asia peers on strength in property developers after local media reported Beijing is unlikely to unveil more sector curbs to avoid worsening the slowdown.

Shenzhen-listed China Vanke, the country's largest real estate developer by sales, rose 1.1 percent after it posted an 8 percent rise in August sales from the same period a year ago.

The CSI300 Index of the top Shanghai and Shenzhen listings slipped 0.2 percent, closing at its lowest since March 2009. The Shanghai Composite Index lost 0.3 percent, while the China Enterprises Index of the top Chinese listings in Hong Kong declined 1.6 percent.

The Hang Seng Index ended down 1.5 percent at 19,145.1, its worst daily loss since July 27. It finished below chart support at 19,162.3, the top end of the gap formed between a July 26 high and a low the following day, suggesting more weakness could be in store.

"Investors largely have a better sense of the risks associated with Europe and the U.S., but not so with China," said Wang Ao-chao, UOB Kay Hian's Shanghai-based head of China research.

Chinese PC maker Lenovo, the world's second-largest name by sales in the sector, slumped 7.5 percent to HK$6.18 after Japan's cash-strapped NEC Corp sold its entire stake in the Chinese PC maker in a deal worth 18 billion yen ($229.6 million).

Wednesday's losses took Lenovo shares below HK$6.30, the lower end of the range at which the deal was priced, suggesting investors were expecting further weakness in the stock despite having posted favourable first half earnings in mid August.

"Confidence is clearly lacking. The way Lenovo is trading today after the block deal points to that," Wang said.

Since hitting a post-earnings high on Aug. 17, Lenovo's share price has steadily declined. It has lost 12 percent since then, but is still up 18 percent for the year.

Lenovo's block deal helped prod Hong Kong bourse turnover to its highest since Aug. 14. There was another block deal involving Chinese auto maker Brilliance, but trading in its shares was suspended on Wednesday.

AIA Group inched up 0.2 percent ahead of a possible $7.6 billion stake sale by American International Group after its lockup expired on Tuesday. Sources told Reuters last week the U.S. insurer is expected to offload its entire stake.

COAL, BANKING SECTORS TAKE BRUNT OF CHINA FEARS

Chinese coal producers were weak after reports that Shandong coking coal price dropped 10 percent last week on weak demand and high inventories. Nomura analysts said this suggests price recovery projections for the fourth quarter may not be as rosy as expected.

Yanzhou Coal dived 6.2 percent in Hong Kong, while leading industry player China Shenhua Energy Co Ltd lost 4.1 percent in Hong Kong and 1.9 percent in Shanghai.

Minsheng Bank was the standout underperformer among Chinese banks. Traders said margin calls aggravated losses on the day for its stock in Hong Kong, which closed at its lowest since October last year.

JP Morgan analysts downgraded its stock from "overweight" to "neutral" and cut their target price by 22 percent. This followed a similar downgrade by Credit Suisse on Tuesday. Minsheng has now lost more than 10 percent in Hong Kong this week.

"Asset quality is now deteriorating across the China banking sector, and rate cuts and deposit competition continue to squeeze net interest margins," said JP Morgan analysts led by Josh Klaczek in a note.

"In this environment, performance favors defensive balance sheets with excess capital and/or liquidity, two areas where Minsheng is constrained," they said.

In a note on Wednesday, Bernstein analysts said concerns over the Chinese banking sector's asset quality were also driven by a sharp 29 percent increase in overdue loans in the first half from the previous half.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.