Hong Kong Stocks Cap Weekly Loss on Earnings, Election Concerns

(Bloomberg) -- Hong Kong stocks fell for a second week as a raft of disappointing earnings and growing angst before the U.S. election dragged the benchmark index to a three-month low.

The Hang Seng Index dropped 1.4 percent this week after companies including Hong Kong Exchanges & Clearing Ltd. reported weaker profit and the race for the American presidency tightened. The gauge retreated 0.2 percent on Friday as declines by oil producers amid slumping oil prices overshadowed gains by companies with U.K. ties following a rally by the pound. Cheung Kong Infrastructure Holdings Ltd. jumped the most in three months.

A gauge of Hong Kong stock volatility is up 22 percent this week as opinion polls show a narrow lead for Democratic presidential candidate Hillary Clinton over her Republican rival, Donald Trump, before voting on Nov. 8. Adding to the downbeat tone has been a reversal of flows from across the border. Chinese investors sold Hong Kong shares through the Shanghai exchange link on the first two days of this week, and buying has been muted since.

“We are still in a very cautious mood ahead of the U.S. election,” said Alex Wong, who helps oversee about $100 million at Ample Capital Ltd. in Hong Kong. “Turnover will probably remain low until the outcome. People are reducing their exposure because they are afraid of a Trump win.”

The Hang Seng Index finished at 22,642.62 on volume that was 31 percent lower than its 30-day average, according to data compiled by Bloomberg. The Hang Seng China Enterprises Index of Hong Kong-traded mainland companies lost 0.3 percent this week.

The Shanghai Composite Index dropped 0.1 percent at the close, paring its weekly gain to 0.7 percent. Mainland shares are diverging from their Hong Kong-listed counterparts, widening a valuation gap. The Hang Seng China AH Premium Index rose on Thursday to its highest level in two months.

Hong Kong Exchanges is down 2.1 percent this week after the bourse operator reported third-quarter earnings declined 34 percent on lower securities trading and higher costs, while Wynn Macau Ltd. has lost 7.2 percent after reporting lower-than-expected profit.

Cheung Kong Infrastructure, which gets more than a quarter of its sales from the U.K., rose 3.4 percent on Friday to be the best performer on the Hang Seng Index. Power Assets Holdings Ltd., which derives almost half its revenue from Britain, gained 0.8 percent. Sterling was on track for a 2.3 percent weekly bounce, its best performance in eight months. The government said it would appeal a High Court ruling requiring it to hold a vote in Parliament before giving the EU official notice of the U.K.'s planned exit.

Cnooc Ltd. fell 0.7 percent. Crude has plunged more than 8 percent this week as the U.S. reported a record jump in its stockpiles. In addition, members of the Organization of Petroleum Exporting Countries who are claiming exemption from an agreement to limit supplies helped boost the group's output to an all-time high last month.

Trading in China International Capital Corp.'s shares was suspended after saying it was set to announce a “very substantial acquisition,” four months after the investment bank said it was talking with China Investment Securities Co. about business opportunities.

NPC Interpretation

Political matters may weigh on Hong Kong shares next week. China's National People's Congress is discussing an interpretation of Hong Kong law regarding the nation's “territorial integrity,” a member of the city's delegation said, setting the stage for Beijing's potential intervention in a legal fight over two pro-independence legislators. A Hong Kong court is considering their fates, and lawyers have warned that Chinese government intervention would undermine the independence of the judiciary.

"We will have to wait until the outcome" to see the impact on investor confidence, said Pauline Dan, head of Greater China equities at Pictet Asset Management Ltd. in Hong Kong. "If they act in a way that is contrary to the rule of law that we are accustomed to in Hong Kong, over the long term it will have consequences but the impact will show through in a much slower fashion. I don't think it will have any immediate results."

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Philip Glamann, Sarah McDonald