HSBC leads losses in Hong Kong as tumbling pound hurts earnings

[HONG KONG] Hong Kong stocks dropped, led by HSBC Holdings Plc and Standard Chartered Plc, as early results in the UK referendum on European Union membership sent the British pound tumbling and threatened earnings for companies with links to the country.

The Hang Seng Index slumped 2 per cent at 10:28 am local time. London-based HSBC, which has the second-largest weighting on the gauge, declined 5.4 per cent to lead declines and Standard Chartered sank 7.2 per cent. Sterling sank the most on record as results put the "Leave" campaign ahead, suggesting the risk of a so-called Brexit is greater than opinion polls implied.

The Hong Kong benchmark measure rose for the past five days, with HSBC jumping almost 10 per cent, as polls boosted speculation the UK would vote to remain in the European bloc.

Many companies in the former British colony have strong ties to the former ruling power, including parts of Li Ka-Shing's empire, according to Partners Capital International Ltd, while the broader impact of a so-called Brexit would also hurt European firms listed in the city, said Jefferies Group LLC.

"There are wild swings all over the place," said Hao Hong, chief China strategist at Bocom International Holdings Co in Hong Kong.

"Unless a speculator has special insight into the matter, it will be better wait on the sidelines rather than betting blindly."

The Hang Seng Index fell to 20,470.43, snapping a five-day, 4.1 per cent advance. Volume on the measure was 58 per cent more than its 30-day intraday average, according to data compiled by Bloomberg.

Hong Kong has made preparations and has adequate liquidity for whatever the result is of the Brexit vote, Radio Television Hong Kong reported, citing Financial Secretary John Tsang.

Billionaire Mr Li's Cheung Kong Infrastructure Holdings Ltd, which received 28 per cent of its revenue from the UK last year, lost 2.7 per cent. Esprit Holdings Ltd, with more than half its earnings coming from Europe, declined for the first time in four days.

"Hong Kong is a very open market so if anyone wants to exit, it's very easy," said Ronald Wan, chief executive at Partners Capital in Hong Kong. "It's more vulnerable than other markets."

The Hang Seng China Enterprises Index, a measure of mainland companies traded in Hong Kong, retreated 2 per cent. The Shanghai Composite Index, the worst performer globally this year, dropped 0.5 per cent.

While investors have focused on Brexit this week, concerns about China's economic slowdown helped send bearish bets on the largest exchange-traded fund tracking the nation's shares in Hong Kong to the highest level since March 2015. Data on the nation's industrial profits and manufacturing are expected next week.

BLOOMBERG