Hong Kong stocks erase advance as developers retreat with MTR

[HONG KONG] Hong Kong stocks fell for a second day, led by property shares, on speculation recent gains were overdone relative to earnings prospects.

The Hang Seng Index retreated 0.1 per cent as of 3:32 pm, erasing a gain of 0.7 per cent. A gauge of real estate companies slid the most among industry groups after climbing to a one-year high earlier this week. Wharf Holdings Ltd, Hong Kong's largest mall operator, dropped 2.5 per cent after posting a decline in net income. MTR headed for its biggest loss in almost three months after reporting lower underlying profit. A rally by casino operators capped broader declines, with Sands China Ltd. gaining the most in two months. Shanghai's benchmark gauge fell 0.2 per cent.

The Hang Seng Index has rallied 22 per cent from its February low to enter a bull market as concerns about a Chinese slowdown waned, the city's property market showed signs of stabilization and investors speculated global central banks will keep adding to stimulus. While Hong Kong's benchmark index is valued at 1.2 times net assets, up from a low of less than 1 earlier in the year, that's still 20 per cent below its seven-year average.

"The run-up for Hong Kong stocks is quite decent so the market probably needs to take a breather," said Dai Ming, a fund manager at Hengsheng Asset Management Co.

"The market is still promising because of its cheap valuation." Industrial Output Hong Kong Exchanges & Clearing Ltd, Asia's biggest exchange operator by market capitalization, slid 1.2 per cent after saying first-half earnings declined 27 per cent on lower securities and commodities trading.

China's statistics bureau is set to release July industrial output, retail sales and fixed-asset investment figures on Friday, and money supply data may be published as early as Wednesday. Data this week showed exports remained subdued while a decline in producer prices narrowed.

There's no need for China to rush to cut borrowing costs and reserve-requirement ratios, China National Radio reported, citing Yao Jingyuan, a researcher at a State Council office. The key issue with the economy is not monetary policy because the supply of money is growing normally, he said.

BLOOMBERG