Investors sold off Hong Kong stocks on Tuesday as they fretted about what more would come from the credit crisis after HSBC Holdings sought to bail out its two structured investment vehicles with funding of up to $35 billion.
Caught in the sell-off was Bank of China, which has reported the biggest subprime losses among mainland banks. Shares in the Beijing-controlled lender tumbled after a key shareholder sold a $567 million stake. Analysts said to expect more damage from the US subprime mortgage mess.
"The turbulence is far from over," said Daniel Chan, strategist at DBS Bank. "We have more downside risks. At the moment, the US subprime market will continue to drag on global markets." Also weighing on the market is the prospect of more tightening measures by China, which has depressed the mainland stock market, Chan said. Hong Kong narrowed its losses on news that financial giant Citigroup had agreed to sell $7.5 billion worth of equity units, to be converted into common shares, to the Abu Dhabi Investment Authority.
The deal was a bid by Citigroup, which has been among the hardest hit by subprime mortgage defaults, to bolster its capital base. The benchmark Hang Seng Index closed down 1.5 percent, or 416.41 points, to end at 27,210.21. The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, fell 1.6 percent, or 263.03 points, to 16,279.34.
Mainboard turnover was HK$120.0 billion (US $15.4 billion), up from Monday's HK$110.1 billion. Bank of China, the day's most active stock, tumbled 5.2 percent to HK$4.02 after Singapore state investment agency Temasek Holdings sold part of its holdings in the bank at a 3.5 percent discount to their Monday close.
HSBC dropped 2 percent to HK$130.9, having earlier hit lows not seen since March 2006. As part of the move to bail out its SIVs, HSBC will also transfer $45 billion worth of assets from these funds onto its balance sheet.
Goldman Sachs downgraded HSBC to "sell", saying Europe's biggest bank would likely need a further $12 billion in provisions for its US subprime mortgage and home equity loans. Among other decling bellwethers, life underwriter China Life dropped nearly 3 percent to HK$40. Oil producer PetroChina Co Ltd slid 3.2 percent to HK$14.66. Aluminium Corp of China edged up 0.5 percent to HK$16.32 after saying it raised its spot alumina price 8.5 percent.
Coal issues outperformed, a day after the benchmark for Asian coal prices rose to a record. China Coal led the sector, up 5.8 percent to HK$21.9, getting a further boost from its expected Shanghai listing in December. China Shenhua, the country's top coal producer, rose 1.4 percent to HK$43.3.
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