Hong Kong shares closed 2.8 percent lower on Tuesday, as China stocks suffered after a smaller-than-expected interest rate cut by Beijing, dealers said. The benchmark Hang Seng Index closed down 401.60 points at 14,220.79, its lowest close since December 5. It had fallen to 14,084.86 earlier in the session.
Turnover was light at 31.95 billion Hong Kong dollars (4.10 billion US), its lowest level in more than two years. Investors also took profits ahead of the Christmas break after a stronger performance by the bourse over the past two weeks. Dealers said they expect the blue chip index's volatility to continue in the coming sessions before the New Year, as thin trading during the holiday period will likely exaggerate movements.
"Many investors sold on news of the rate cut in China, though the market movement was particularly large because of the light turnover," Ben Kwong, chief operating officer at KGI Asia, told Dow Jones Newswires. The People's Bank of China said late Monday it will cut the one-year yuan lending rate by 27 basis points to 5.31 percent, and the one-year yuan deposit rate to 2.25 percent from 2.52 percent, effective Tuesday. Dealers said the rate cut had been much anticipated and many investors accumulated their positions beforehand, only to sell as a result of the lower-than-expected cut.
Property developers, which had outperformed in recent weeks, led the day's blue chip losses. Cheung Kong Holdings fell 7.6 percent to 71.20 dollars, Wharf Holdings tumbled 7.1 percent to 20.45, Sino Land dropped 6.4 percent to 7.80, and Henderson Land shed 4.6 percent to 30.35.
The weak turnover in the Hong Kong stock market weighed on bourse operator Hong Kong Exchange and Clearing, which fell 3.8 percent to 73.00 dollars. Dealers said they expect the Hang Seng Index to head lower in the first quarter because stocks now are generally fully priced. "Investors should consider buying only when the index falls to around 12,000, which is a more reasonable level," said KGI's Kwong.