HONG KONG, Aug 10: Hong Kong shares retreated from a three-month high on Friday, dragged down by a 19.8 percent slump in Li & Fung Ltd as the global supply chain manager triggered a host of brokerage downgrades after posting a fall of more than a fifth in its half-year core operating profit.
Disappointing China July trade data added to the gloom, a day after weaker-than-forecast producer prices fanned hopes that Beijing will do more to bolster growth and prodded the Hang Seng Index on Thursday to the highest close since May 9.
The Hang Seng Index entered the midday break down 0.7 percent at 20,125.5. It remains set for a second-straight weekly gain, and was standing 2.3 percent up on the week.
‘The big miss with the trade data today could mean China is in bigger trouble than most people think, and the uncertainty might hurt interest in stocks even more,’ said Larry Jiang, chief investment strategist at Guotai Junan International Securities.
Jiang added that he would advise investors position themselves defensively, but be ready to chase technical bounces.
Data on Friday showed China’s July exports rose just 1 percent from a year earlier, undershooting forecasts by a big margin and adding to a downbeat set of monthly data.
The Shanghai Composite Index was down 0.1 percent, while the CSI300 Index of the top Shanghai and Shenzhen listings shed 0.3 percent.
On the week, both indices are still up on the week and set for their second-straight weekly gains, up 1.8 and 2.1 percent, respectively.
Underscoring concerns over the extent that the slowdown in China was hitting its companies, the nornally resilient alcohol producer Kweichow Moutai posted weaker-than-expected growth of 43 percent in first half net profit after markets closed on Thursday.
Its Shanghai shares slumped 4.9 percent.
EARNING, EARNINGS, EARNINGS
Weak earnings hit Li & Fung much harder. The supply chain manager for major retailers such as Wal-Mart Stores Inc and Target Corp said on Thursday that half-year core operating profit fell 22 percent and warned that its euro operations remained weak.
Goldman Sachs was among the brokers to downgrade Li & Fung, cutting it to ‘neutral’ from ‘buy’. Bank of America Merrill Lynch lowered its target price on the stock to HK$17 from HK$18.60 and retained a ‘neutral’ rating.
Its Hong Kong shares were up more than 10 percent for the year before Friday, but it is now down almost 11 percent. If Friday’s losses persist, it will be Li & Fung’s worst since it listed in 1992.
China Yurun Food Group and China Datang Corporation Renewable Power slumped 7.3 and 3.5 percent after they both warned of a substantial fall in first half net profit.
China Overseas Land & Investment rose 1.3 percent ahead of its interim earnings announcement. The mainland’s largest home builder by market value posted a slightly lower-than-expected 9.3 percent rise in first-half core profit.
It is now up more than 41 percent this year to date and is currently trading at 9.1 times forward 12-month earnings, a 30 percent discount to its historical median, according to Thomson Reuters StarMine.
(AGENCIES)
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