HSI drops to 2-yr low on European default fears

Updated: 2011-09-20 07:07

By Jonathan Burgos(HK Edition)

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HSI drops to 2-yr low on European default fears

A trader talks to a colleague on the floor of HKEx. The HSI dropped 2.76 percent to 18917.95 at the close on Monday, the lowest since July 2009. Laurent Fievet / AFP

Hong Kong stocks dragged the benchmark Hang Seng Index (HSI) to its lowest close in two years on Monday, as concern mounted that Greece's sovereign-debt crisis may be coming to a head, threatening to halt a global economic recovery.

"The Greek situation could be coming to a head," said Khiem Do, the Hong Kong-based head of multi asset strategy at Baring Asset Management, which oversees about $10 billion. "Some hair cut might be needed for Greece if it doesn't receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That's what the market is fearing."

The HSI dropped 2.76 percent to 18917.95 at the close, the lowest since July 2009. The gauge extended last week's 2.1 percent decline as international monitors get set to assess whether Greece can meet the conditions of rescue loans to avoid a default. Greek Prime Minister George Papandreou canceled a US visit that was to begin on Sunday, saying he needed to remain in the country for a "critical" seven days.

All but four stocks declined in the 46-member HSI. The Hang Seng China Enterprises Index sank 3.73 percent to 9866.97.

Finance chiefs from the euro region said last week that the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. Economic reports on Germany this week are forecast to show a decline in investor confidence and a slowdown in manufacturing in Europe's largest economy.

HSBC Holdings slipped 2.6 percent to HK$62.90. Standard Chartered Plc dropped 2.3 percent to HK$165.30. Esprit Holdings tumbled 20 percent to HK$9.80, the biggest decline since October 2007.

Chinese lenders dropped on speculation the central government will introduce measures to control inflation and further tighten monetary policy after a report showed new-home prices increased in all mainland cities.

Industrial & Commercial Bank of China Ltd decreased 4.2 percent to HK$4.57. China Construction Bank Corp slipped 2.8 percent to HK$5.52. Smaller rival Bank of China Ltd dropped 3.4 percent to HK$2.82.

The central government's measures to control property market are at a critical stage and the nation needs to focus efforts on curbing price increases in less affluent cities after limiting home purchases in cities including Beijing and Shanghai, Premier Wen Jiabao said on September 1.

The HSI tumbled 24 percent from its November 2010 high on concern the global recovery will falter amid Europe's debt crisis and a slowing US economy. Shares on the index traded at 10.1 times estimated earnings, compared with 12.2 times for the Standard & Poor's 500 Index.

Raw-material producers declined on speculation demand will weaken as global economic growth slows. Cnooc declined 4 percent to HK$13.30. PetroChina Co dropped 3.2 percent to HK$9.53. Jiangxi Copper Co slumped 6.8 percent to HK$17.40.

Crude oil futures headed for a one-week low in New York, while copper for three-month delivery extended its decline for a second day in London.

Futures on the HSI decreased 2 percent to 18935. HSI Volatility Index advanced 7.2 percent to 36.23.

Bloomberg

(HK Edition 09/20/2011 page2)