Hong Kong stocks closed at fresh lows for the year on Friday as investors were spooked by a weak earnings report from telephone giant China Unicom and worried about political uncertainty in Taiwan.
"China Unicom dropped a bomb on the market, no one expected a profit decline," said Andrew To, sales director at Tai Fook Securities.
The blue chip Hang Seng Index fell 0.30 percent or 36.97 points to 12,483.24. The index lost 2.4 percent over the week and is now marginally below its starting level for the year.
Volume was below recent averages with HK $14.74 billion (US $1.89 billion) changing hands.
Hang Seng constituent China Unicom Ltd tumbled 12.27 percent to HK $7.15.
The mobile phone firm, which accounts for 2.66 percent of the Hang Seng's weighting, was the top performing stock in the index earlier this year, but has now lost almost all those gains after reporting a surprise fall in profit for 2003.
Analysts also said Unicom shares were overvalued after trading at 20 times forward earnings versus 12.45 times earnings for sector peer China Mobile (Hong Kong) Ltd.
Top tier banking and property stocks ended the day mixed after rising on US gains earlier in the day.
Index heavyweight HSBC Holdings ended flat at HK $115.50.
The Hang Seng Properties sub index gained a slim 0.15 percent to 15,815.33.
Sourcing firm Li & Fung Ltd continued its decline after posting lower than expected profits earlier in the week. The shares fell 2.49 percent on Friday to HK $11.75.
Traders said they see further downside in the week ahead with the expiration of futures contracts due next week along with the end of the first quarter of the calendar year.
However, many expect the Hang Seng to regain its poise later in the year as political worries and weak earnings take a back seat to strong economic growth in Hong Kong.
But Lau said political uncertainties including Taiwan elections, US elections and global terror fears could provide volatility.
News that Taiwan protesters were planning a massive rally on Saturday to protest last week's election outcome also hurt sentiment. President Chen Shui-bian won last Saturday's vote by a whisper-thin margin of 0.2 percent.
Taiwan stocks, which had been Asia's best performing outside China this year, lost nearly 10 percent this week.
Investors also said they would keep a close eye on a possible rise in Chinese interest rates. A rate hike might be in store if Beijing's latest clampdown on lending fails to curb economic overheating.
"People are starting to look at China interest rates. Just a quarter of a percentage point won't impact economic growth but I think investors will take this as a signal," said Edmond Lee, strategist at Sun Hung Kai Research Ltd.
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