Hong Kong stocks fell more than a third of a percent on Tuesday with property shares such as Sun Hung Kai Properties hurt by a larger than expected rate hike by the city's biggest banks. "The losses were mainly felt on properties. We still have some downside, interest rate increases are not over yet," said Francis Lun, general manager at Fulbright Securities.
The blue chip Hang Seng Index fell 0.37 percent, or 53.07 points, to 14,124.80. Volume was below recent averages with HK$15 billion ($1.9 billion) worth of shares changing hands.
Hong Kong's largest lenders such as HSBC Holdings and Bank of China Hong Kong said on Monday they were raising their prime lending rates by 50 basis points in a bid to play catch up with rising US rates.
Some analysts anticipate the higher cost of borrowing will hurt stocks in the second half of the year. J.P. Morgan earlier this week downgraded Hong Kong equities to "underweight" within the Asia Pacific region.
"We believe that the market is too complacent about the potential 2.5 times increase in mortgage rates between 2004 and 2006," said J.P. Morgan analyst Adrian Mowat in a research note.
But some analysts believe rate hike shock will be short-lived with residential, retali and commercial property values set to rise further on the back of sustained increases in tourism and business ties with mainland China.
Shares in recent Hang Seng index entrants Sino Land and New World Development were among the biggest property losers.
Mid-tier developer Sino Land fell 1.2 percent to HK$8.20, while highly geared New World fell 3.14 percent to HK$9.25.
The city's largest property firm Sun Hung Kai Properties fell 0.7 percent to HK$76. But the stock had gained nearly 4 percent over the past month to Monday's close despite interest rate worries.
Property-heavy conglomerate Wharf Holdings bucked the property downtrend, rising 0.7 percent to HK$27.25. Goldman Sachs said in a research note that Wharf remained its "favoured reflation play," and sees further capital value appreciation in the firm's investment assets.
CNOOC, China's largest offshore oil producer, was a top blue chip gainer, rising 2.7 percent to HK$4.75 and tapping a fresh record high.
CNOOC shares have jumped nearly 9 percent in the past month with investors emboldened by the firm's US $18.5 billion dollar bid for US oil firm Unocal. The firm's shares are also sensitive to sky high world oil prices, according to analysts.
China's largest oil firm PetroChina tapped fresh record highs at HK$6.10 in intraday trade, but settled back to close flat at HK$5.90.
China's largest copper producer Jiangxi Copper rose 1.3 percent to HK$3.80 after the firm said it expects its first-half profits for the six months to June 30 to increase by over 50 percent.
But shares in the recently-listed China lender Bank of Communications fell 1.8 percent to HK$2.75 after the firm exercised its overallotment option, increasing the size of the deal by 15 percent to about US $2.16 billion.
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