Hang Seng Index Set to Enter Correction Amid Protests

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By Kana Nishizawa

Hong Kongstocks fell, with the benchmark index poised to enter a correction, as investors saw no end to the city’s biggest period of political unrest since the 1960s.

Emperor Watch & Jewellery Ltd. (887) sank 5.6 percent as retailers slid amid falling visitor arrivals to Hong Kong. Henderson Land Development Co., a builder controlled by billionaire Lee Shau-kee, retreated 2.2 percent. China Modern Dairy Holdings Ltd. tumbled 8.6 percent after Credit Suisse Group AG downgraded the stock. Macau casinos led the drop on the benchmark index on expectations protests will sap revenue.

The Hang Seng Index fell 1.1 percent to 22,685.76 as of 10:14 a.m. in Hong Kong as markets reopened from a two-day holiday, extending its slump from a Sept. 3 peak to more than 10 percent and meeting the common definition of a correction. The measure is headed for a 4.3 percent drop this week. The MSCI Hong Kong Index lost 1.2 percent today, while the Hang Seng China Enterprises Index, or H-shares gauge, slid 0.8 percent. A gauge of volatility surged 7.2 percent.

Hong Kong’s top official Leung Chun-ying agreed to demands by student leaders for talks, nominating his his deputy, after protests disrupted some of the city’s busiest areas. The government said this morning its office complex would be closed today after students blocked access to the building that’s been the focus of demonstrations for at least a week.

“I don’t see any resolution,” said Francis Lun, chief executive officer of Geo Securities Ltd. “Effects on retail and tourism industry will be devastating, and the protests are hurting the economy. Funds will be switching out from Hong Kong-related stocks to China-related ones.”

Relative Value

The Hang Seng Index (HSI) in September capped its biggest monthly drop since May 2012 amid concern about the Federal Reserve likely ending its bond-buying program this month, dragging the equity gauge’s valuation to 10.5 times estimated earnings on Sept. 30, compared with 16.1 for Standard and Poor’s 500 Index yesterday. Hong Kong stocks dropped after police used tear gas on demonstrators over the weekend for the first time since 2005, shocking a city used to peaceful rallies.

The protests began Sept. 26 to oppose China’s decision that candidates for the 2017 election of chief executive be vetted by a committee. Critics say the system is likely to produce a new leader effectively handpicked by the government in Beijing.

Templeton Emerging Markets Group and Aberdeen Asset Management Plc, which oversee about $590 billion, say they’re preparing to buy Hong Kong-listed shares that were punished indiscriminately during the selloff. UBS Wealth Management says earnings growth of companies in the Hang Seng Index will see “minimal impact” from the protests.

Discount Erased

The Hang Seng China AH Premium Index, which measures the weighted average gap between the largest shares with listings in both Hong Kong and the mainland, rose to 100.36 on Sept. 30, the highest level since policymakers unveiled the Hong Kong-Shanghai exchange link in April. A level of 100 means H-shares in Hong Kong trade at the same price as A-shares on the mainland.

Markets in mainland China remains closed for holidays and will reopen from Oct. 8. The benchmark Shanghai Composite Index (SHCOMP) this week capped its best quarterly performance since 2009 as investors weighed prospects for additional stimulus amid signs of mainland economic weakness.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at [email protected]

To contact the editors responsible for this story: Sarah McDonald at [email protected]Jim Powell, John McCluskey

 

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