Market Wrap: Hang Seng ends 10-day rally on earnings woes

PUBLISHED : Friday, 26 October, 2012, 6:12pm
UPDATED : Friday, 26 October, 2012, 6:56pm

Hong Kong stocks ended their 10-day rally as investors took profit on worries that this earning season may turn out to be disappointing for some major Chinese firms after China Unicom (0763.HK)’s third-quarter results missed forecasts.

The benchmark Hang Seng Index lost 264.66 points, or 1.21 per cent, to close at 21,545.57, after gaining 4.3 per cent during the past ten trading days. Average daily turnover totalled 55.13 billion on Friday, compared with a year-to-date average of HK$53 billion.

Fourth-quarter earnings for non-financial Chinese companies would grow 9.9 per cent in the fourth quarter from an 11 per cent drop in the third quarter, said UBS analyst Chen Li, head of China equity research at UBS AG.

“A restock cycle will occur from December to next February as industrial product prices pick up, which would help boost the order books of Chinese firms.” Chen said.

The Hang Seng China Enterprises Index, which tracks the performance of Hong Kong-listed Chinese firms, lost 166.90 points, or 1.57 per cent, to finish at 10,449.53.

Bank of China (3988.HK) was the most traded stock by volume of the day, shedding 0.32 per cent to finish at HK$3.14. The nation’s No 4 biggest lender by assets on Thursday posted a 17 per cent increase in third-quarter net profit.

Yet analysts are worried about BoC’s bad loan coverage after it set aside less capital to cover such loans. China Construction Bank (0939.HK), due to report earnings later on Friday, shed 1.03 per cent to finish at HK$5.74.

China Unicom (0762.HK), the nation’s No 2 mobile operator, posted the biggest fall in more than three years after its third-quarter results missed market estimates. The stock lost 7.6 per cent to finish at HK$12.72.

The state-owned firm posted a 27 per cent year-on-year growth in third-quarter net profit of 2.02 billion from July to September, which is in line with a forecast of 2.2 billion yuan in a Reuters poll and 2.21 billion yuan in a Bloomberg poll.

“The mobile business was slightly weaker than our expectations. We ascribe Unicom’s 3Q net profit miss mainly to an increase in selling and marketing expenses on “back to school” promotions,” Deutsche Bank analyst Alan Hellawell III wrote in a report. Hellawell has a target price of HK$19.3 on the stock.