Hong Kong Stocks Decline; Bank of Communications, Rusal Tumble

Nov. 12 （Bloomberg） -- Hong Kong stocks fell on mounting speculation China may step up measures to curb gains in property prices after inflation accelerated to the fastest pace in two years last month.

Bank of China Ltd., the nation’s third-largest bank by market value, slid 2.1 percent. Bank of Communications Co., the fifth biggest, dropped 1.6 percent. Bank of America Merrill Lynch said inflation and policy risks will cloud “earnings visibility” for banks in 2011. Shimao Property Holdings Ltd., controlled by Chinese billionaire Xu Rongmao, lost 3.3 percent. United Co. Rusal plunged 6.7 percent after the world’s largest aluminum producer reported lower profit.

“Inflation came in surprisingly high and it’s raising concern of another interest-rate hike this year,” said Steven Leung , director of institutional sales at UOB-Kay Hian Ltd. in Hong Kong. “Long funds tend to be a bit cautious after the market went up so much in such a short time.”

The Hang Seng Index slipped 1 percent to 24,450.77 at the 12:30 p.m. trading break, extending its drop this week to 1.7 percent. The Hang Seng China Enterprises Index of so-called H shares of Chinese companies fell 1.7 percent to 13,851.12.

The Hang Seng Index has gained 12 percent this year on expectations that growth in corporate earnings will overcome concerns about the pace of the U.S. economic recovery and China’s steps to curb rising property prices. Shares in the gauge trade at an average 15.4 times estimated earnings, compared with about 17.2 times at the start of the year.

Inflation Risk

China’s consumer prices jumped to a two-year high of 4.4 percent in October, the statistics bureau said yesterday. The nation increased reserve requirements for some banks twice this week, taking the total increase to 100 basis points, according to two people with direct knowledge of the situation.

Bank of China slid 2.1 percent to HK$4.57. Bank of Communications dropped 1.6 percent to HK$8.62.

Shimao lost 3.3 percent to HK$13. Guangzhou R&F Properties Co., a Chinese developer, slid 0.5 percent to HK$11.30.

Inflation and policy risks will cloud “earnings visibility” for China’s banks in 2011, Alistair Scarff and Michael Li, analysts at Bank of America Merrill Lynch, wrote in a report today. “Earnings momentum may decelerate due to lower volume, higher provisions, and potential margin squeeze.”

Rusal plunged 6.7 percent to HK$9.80 after posting a 55 percent drop in third-quarter profit. Net income fell to $29 million, the Moscow-based producer said.

Futures Fall

Futures on the Hang Seng Index fell 1.1 percent to 24,424. More than three stocks dropped for each that rose among the measure’s 45 constituents.

Metallurgical Corp. of China Ltd., a provider of metallurgical facilities, lost 3.3 percent to HK$3.54. The stock will be deleted from the H-share index after a quarterly review yesterday of the Hang Seng Indexes. So will Datang International Power Generation Co., China’s biggest publicly traded electricity producer by market value, which declined 1.3 percent to HK$3.07.

Agricultural Bank of China Ltd., which completed the world’s third-biggest initial public offering this year, will become the gauge’s latest addition. The stock fell 1.4 percent to HK$4.32. Guangzhou Automobile Group Co., another new H-share index member, slid 0.8 percent to HK$13.18.