Hong Kong Stocks Tumble as Economic Outlook Dims

By Patrick Rial

Jan. 20 (Bloomberg) -- Hong Kong stocks dropped to the lowest level in almost two months as rising unemployment and a forecast of record losses by Royal Bank of Scotland Group Plc intensified concern the global economic slump is worsening.

Foxconn International Holdings Ltd. lost 6.6 percent after the world’s biggest contract maker of mobile phones said profit is likely to drop as demand falls. HSBC Holdings Plc, Europe’s largest bank, lost 6.3 percent on rising speculation it will not be able to avoid raising capital.

“The global economy is going to remain weak,” said Michiya Tomita, a Hong Kong-based fund manager of Chinese stocks at Mitsubishi UFJ Asset Management Co., which oversees $61 billion. “The effect of the U.S. and European financial problems are being felt here because HSBC carries such a strong weight in equity indexes.”

The Hang Seng Index dropped 464.59, or 3.5 percent, to 12,874.40 as of 11:06 a.m. local time, set for the lowest level since Nov. 24. The Hang Seng China Enterprises Index, which tracks Chinese companies’ so-called H shares, retreated 3.6 percent to 6,983.71.

The Hang Seng lost 48 percent in 2008, its worst annual performance since 1974, as the financial crisis pulled economies worldwide into recession. The gauge has retreated 11 percent so far in 2009. Analysts have cut profit estimates by 12 percent in the last 12 months for companies in the index, according to data compiled by Bloomberg.

GDP Estimate Lowered

Foxconn fell 6.6 percent to HK$2.81. The company said yesterday it had a “significant decline” in 2008 profit as demand and prices for mobile phones slumped.

New World Department Store China Ltd., a retailing unit of Hong Kong billionaire Cheng Yu-tung’s New World Development Co., retreated 5.6 percent to HK$3.05. Hang Lung Properties Ltd., which owns the Plaza 66 complex in Shanghai, tumbled 8 percent to HK$17.07.

Hong Kong’s unemployment rate climbed to 4.1 percent for the latest quarter, the highest level in 15 months, the government said yesterday.

Denise Yam, an economist at Morgan Stanley, lowered her gross domestic product forecast for Hong Kong to minus 3.8 percent for 2009 because waning global demand will reduce exports.

“The latest cuts are driven primarily by further weakening in external demand, which is expected to slash merchandise trade flows by more than 10 percent,” Lam wrote in a report.

Exports of goods and services will decline, Lam wrote. “The recovery in 2010 is expected to be tepid at best.”

ICBC Falls

HSBC lost 6.3 percent to HK$58.35, headed for the lowest level since October 1998. Industrial & Commercial Bank of China Ltd. dropped 5.2 percent to HK$3.27 after the New York Post reported American Express Co. plans to sell its $500 million stake in the bank as soon as restrictions on selling the shares are removed in three months.

RBS said yesterday it may post a loss of as much as 28 billion pounds ($41 billion) this year, which would be the biggest loss in U.K. corporate history, exceeding Vodafone Group Plc’s 22 billion pound net loss in 2006. The stock plummeted 67 percent.