HK stocks slump after bank reserves to go up

By Hanny Wan  |   2008-6-11  |     NEWSPAPER EDITION

HONG Kong stocks slumped, sending the benchmark index to its steepest drop in almost three months, after China told its banks to increase reserves for a fifth time this year.

Industrial & Commercial Bank of China Ltd and China Overseas Land & Investment Ltd, a developer controlled by the country's construction ministry, plunged.

Sino Land Co, a Hong Kong-based developer, declined the most in almost three months after the United States Federal Reserve chairman raised the specter of higher interest rates when he told policy makers to "strongly resist" inflation. The city's interest rates typically move in step with those in the US because Hong Kong's currency is linked to the American dollar, Bloomberg News said.

"Things seem to be worse than expected and general market sentiment is being hit," said Nancy Lee, a portfolio manager at Taifook Asset Management Ltd, which handles about US$300 million in Hong Kong.

The Hang Seng Index lost 1,026.66, or 4.2 percent, to close at 23,375.52. June futures retreated 5 percent to 23,221. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese mainland companies, slumped 5.4 percent to 12,789.87, according to Bloomberg News.

Cathay Pacific Airways Ltd, Hong Kong's largest airline, fell the most in more than four months after UBS AG cut its rating to "sell." HSBC Holdings Plc dropped after Lehman Brothers Holdings Inc reported a US$2.8 billion loss.

ICBC, the nation's biggest bank by market value, tumbled 7.2 percent to HK$5.45 (70 US cents), its worst decline since January 22. China Construction Bank Corp, the second largest, dropped 4.9 percent to HK$6.55. China Overseas Land fell 5.9 percent to HK$13.62, its largest drop since March 17. Shimao Property Holdings Ltd, a developer controlled by billionaire Xu Rongmao, plunged 8 percent to HK$11.66.

China told banks to set aside higher reserves for the fifth time this year to cool inflation that is close to an 11-year high. Banks must put aside a record 17 percent of deposits as reserves starting next Monday, rising to 17.5 percent starting on June 25. The current requirement is 16.5 percent.