Hong Kong shares dropped 2.9 percent to a nearly two-month low on Wednesday as more Chinese companies issued profit warnings and investors worried the global financial crisis would become protracted. Stocks came under pressure ahead of the Lunar New Year break and as more foreign banks appeared in need of capital infusions or government rescues.
"People are generally cautious ahead of the Chinese New Year. Most of them want to hold on to their cash," said Howard Gorges, vice-chairman at South China Securities. The Hang Seng Index dropped 376.14 points to end officially at 12,583.63, the lowest closing level since November 24, 2008, when the index finished at 12,457.94.
Mainboard turnover rose to HK$47.7 billion from Tuesday's HK$39.6 billion. Index heavyweight HSBC lost a further 4.4 percent after sliding as much as 8.8 percent on Tuesday, pressured by sector worries. But the UK-based lender said on Monday it could not envision circumstances under which it would need to seek government support.
"All this talk about HSBC and about the UK government rescuing banks are making investors more nervous," Gorges said. "We are in a kind of market where nobody wants to stick their necks out," he said. The China Enterprises Index of top locally listed mainland firms fell nearly 4 percent to 6,730.82. "Several stocks had been hit by profit warnings," said Alex Tang, research director at Core Pacific-Yamaichi International (HK) Ltd.
China Life Insurance tumbled 7.5 percent at the close after the firm warned of a sharp drop in 2008 earnings, China's Angang Steel Co Ltd plunged 12.9 percent after it warned on Tuesday its 2008 net profit may fall 55 percent to about 3.42 billion yuan ($500 million) due to high raw material costs and slumping steel prices.
Top oil and gas producer CNOOC Ltd fell 2.6 percent as revenues were seen likely to drop sharply this year with oil prices plummeting on weak global demand. Aluminium Corp of China Ltd (Chalco) slumped 6.6 percent. Morgan Stanley said the company is vulnerable to weak meta prices and initiated rating the stock as underweight with a HK$3.01 price target, or 22 percent below market price.