China, HK Stocks Fall 3.6%

123jump.com Staff
17 Sep, 2008
New York City

Stocks in Hong Kong and in Shaghai dropped more than 3.6% on persistent worries related to the health of the U.S. financial system. The latest bailout of AIG with a huge loan of $85 billion only added to the pile of long worries of rising inflation in China and falling property prices. Hong Kong real estate prices are expected to decline at least 10% as lending tightens and global credit markets worries persist.

[R]6:00AM New York, 6:00PM Hong Kong – Hong Kong and Shanghai stocks fell sharply on the worries that the U.S. financial crisis may deepen, despite the U.S. Fed bail out of the largest insurance company AIG.[/R]

Market Sentiment

In Hong Kong trading Hang Seng Index fell 3.63% or 663.42 to 17,637.19, and the China Enterprises Index of Hong Kong listed mainland shares, or H shares, slipped 6.19% or 571.43 to 8,665.15. In Shanghai trading CSI 300 Index declined 3.57% or 71.52 to 1,929.14.

Daily turnover on main-board was HK$76.23 billion compared with HK$88.4 billion yesterday.

ADB Cuts China Growth Forecast to 9.5%

The Asia Development Bank reported on its Web site yesterday that according to the Asia Development Outlook report China’s economic growth is forecasted to ease to 9.5% from 9.8% for 2009 on the fall in trade surplus and slowing domestic demand.

However ADB maintained its forecast for 2008 at 10%. The bank cautioned that inflation may cross 7% this year, which is markedly higher than Beijing’s target of 4.8%.

Private economists estimate China’s economic growth in the third and fourth quarters to increase to 9.5% in spite of the deteriorating economic conditions.

According to the report, developing Asian countries will have a more moderate growth outlook of 7.5% this year and ease to 7.2% in 2009 from a sustained 9% rise in the past two decades.

In 2008, the inflation rate in Asia is projected to rise to 7.8% from an earlier estimate of 5.1% and remain at 6% in 2009.

Ifzal Ali, Chief Economist of ADB observed, “The impact of high food and oil prices on inflation has been muted in most of Asia. This central finding has vast implications for monetary policies in the region. In particular, it means that monetary tightening will continue to be a principal instrument for fighting inflation in Asia.

It’s time to tighten our belts and for governments to cut subsidies, on fuel for example, that have shielded consumers from the brunt of the increases. These subsidies are not sustainable. When the subsidies are removed, renewed upward pressure will commence and will raise inflation.”

Gainers & Losers

Hong Kong stocks fell markedly on the persistent concerns that credit market losses might widen despite the U.S. Federal Reserve move to extend a $85 billion emergency loan to AIG. Investors were also unnerved by news that Morgan Stanley is weighing options of whether to stay independent or merge with another entity.

Chinese financial stocks dropped. Ping An slipped 7.8%, the Industrial and Commercial Bank of China plummeted 10%, HSBC slipped 2.5% and China Merchants Bank declined 7.7% after reporting that it has $70 million in Lehman Brothers debt. China Construction Bank plunged 8.2%.

Property stocks declined as market watchers forecasted that property prices might drop between 8% and 10% by the end of the year. Cheung Kong and Sun Hung Kai Properties both fell 4% and R&F Properties tumbled 12% due to its exposure to Lehman Brothers.

Telecommunication stocks however increased. China Unicom gained 0.5% after shareholders approved the previously announced takeover of China Netcom which closed unchanged at HK$15.10.