New mainland property sale rules, Goldman Sachs woes cited as factors

Hong Kong stocks took another hit, suffering their biggest single-day loss in percentage terms in two months, led by mainland property developers and banks after the central government announced further measures to curb speculative demand for real estate, and after US regulators accused Goldman Sachs of fraud.

The benchmark Hang Seng Index closed the day down 460.09 points, or 2.1 percent, its sharpest drop since February 19, to the verge of a three-week low, closing at 21,405.1 points, after plunging over 500 points at one point in intraday trading.

The China Enterprises Index of top locally listed mainland stocks fell 2.42 percent to 12, 253.78, the lowest in three weeks.

Banking stocks were hit by news of a US investigation into Goldman Sachs. HSBC Holdings Plc slid 3.2 percent to HK$81.85, while Standard Chartered declined 3.8 percent to HK$210.40.

The US Securities and Exchange Commission Friday said the investment bank defrauded investors by failing to disclose key information about mortgage investments it sold in 2008 when the US housing market was collapsing. The bank now also faces a regulatory probe in Britain and scrutiny from the German government.

Thomas Ng, investment strategist at Quam Securities Co Ltd said news about investigations into Goldman Sachs may cause a major correction in banking and financial stocks, but he believes that the correction won't last long, perhaps until early May.

"The credibility of financial institutions was undermined after the onset of the financial crisis, whereas Goldman's possible fraud should not be a big surprise to the market. But the news came out when investors believe the market is ready for a correction after two consecutive months of gains, so Goldman Sachs provides them a perfect excuse to sell off," said Ng.

"Since conditions and prospects for the financial industry are now in doubt, sentiment for HSBC and Standard Chartered will be affected for a while, but it won't be long, as neither of the two banks was involved in the deals Goldman was accused of," Ng added.

Mainland developers underperformed as well after the State Council announced new measures over the weekend to curb speculative demand for real estate.

Banks in the mainland are being asked to stop loans for third-home purchases in cities with excessive property price gains and to suspend lending to buyers who are not able to provide tax returns or proof of social security contributions in that city. Reports also cited unidentified sources saying the mainland may soon introduce, on a trial basis, a new tax on property transactions.

China Resources Land declined 5.5 percent to HK$14.42, while Sino-Ocean China Overseas Land & Investment lost 3.74 percent to dip to HK$14.92.

"These newly released measures will put further pressure on mainland developer stocks, which actually have been in a downturn over the past 4 months. The weaker-than expected debut of index futures contracts on the mainland market last Friday also hurt market sentiment," Ng said.

Hong Kong developers also declined, with Henderson Land down 2 percent and Cheung Kong off 2.3 percent to its lowest in three weeks Monday.

China Daily

(HK Edition 04/20/2010 page2)