Hong Kong stocks fell 2.8 percent on Friday in their worst one-day drop in nearly five months, as sliding global equities triggered a cross-the-board sell-off on worries that US credit woes could herald a broader financial crunch. Mainboard turnover was the second-highest ever at HK$112.5 billion (US $14.4 billion).
Among the day's bright spots was China COSCO Holdings Co Ltd, which hit a life high on news that the shipping conglomerate was considering issuing domestic A shares to buy its parent's bulk carrier fleet, the world's largest. The shipper finished up 6.8 percent at HK$13.58.
Stocks fell world-wide on worries that rising costs of corporate credit would hurt the US economy. Concerns about rising defaults in the US subprime mortgage market, which caters to high-risk borrowers, has led to a tightening of credit for corporate borrowers.
Market professionals said more downside may be ahead. "There's no doubt that credit conditions are taking a turn here, combining that with the deterioration in subprime - it's difficult to see quick relief," said Matt McKeith, head of equity dealing at First State Investments.
"The question is, 'can the Asian story withstand this?'" Mona Chung fund manager at Daiwa Asset Management said Hong Kong's bull trend was still intact, as long as China delivered growth. "So long as the China story can be sustained, this will lend support to Hong Kong," she said. "Everywhere, stocks have been going up, so this is an excuse for investors to lock in profits. If shares fall more than 5 percent, it's a good time to buy on weakness."
Blue chips all closed lower, with the benchmark Hang Seng Index finishing down 641.28 points at 22,570.41, a three-week low, yielding a 3.1 percent loss for the week. Hang Seng had its worst one-day drop since early March when carry trades showed signs of unravelling and troubles accelerated in the subprime sector.
The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, fell 3.2 percent, or 430.59 points, to 12,926.43, for a 1.7 percent weekly loss. Investors will be looking forward to the beginning of earnings season on Monday when heavyweight HSBC Holdings plc is due to report its interim earnings. Shares in the global bank, already been beaten down on its US subprime exposure, finished percent 1.5 lower at HK$141.10 as the day's top traded stock.
Among the hardest hit large caps were insurer China Life, which dropped 3.5 percent to HK$32.05, and rival Ping An Insurance which tumbled 4.4 percent to HK$63.40. Industrial & Commercial Bank of China slid 4.1 percent to HK$4.66. Among declining resource shares, oil producer PetroChina Co Ltd fell 3.1 percent to HK$11.76 and coal producer China Shenhua Energy plummeted 3.7 percent to HK$30.25.
Semiconductor Manufacturing International Corp, China's biggest contract chip maker, tanked 5.5 percent to HK$1.04 after saying it posted a net loss of $2.05 million for the second quarter, compared with a profit of $1.36 million a year ago, the company announced earlier.