Hang Seng posts biggest slump this year while Exxon's disposal of Sinopec stake impacts on H shares Doubts over HSBC's ability to repeat last year's 30 per cent earnings growth continued to be the main drag on the market yesterday, with the Hang Seng Index plummeting for the second day in a row. Further signs of a massive funds outflow from Hong Kong and the increasing likelihood of some drastic local interest-rate rises this year, coupled with the latest share dumping by the last remaining strategic foreign investor in China Petroleum & Chemical (Sinopec) on Tuesday night, also contributed to yesterday's 210.37-point drop, the biggest this year. On the other hand, market watchers almost unanimously brushed off the effect on the market of rumours about Chief Executive Tung Chee-hwa's imminent resignation. The HSI closed down 1.5 per cent at 13,850.78 points. With more analyst reports reflecting on HSBC's annual results being published over the past few days, the bank followed Tuesday's 2.24 per cent drop with a further $2, or 1.53 per cent, loss to $128.50 yesterday, and brokers said there was still some way to go. 'If history repeats itself I won't be surprised to see HSBC drop to somewhere between $118 and $120,' said Phillip Securities director Louis Wong Wai-kit. 'A year ago when they announced a similar set of results it fell all the way from $129 to $108 [before rebounding]. Given that it started at $135 this time I think we still have to wait a while.' Mr Wong also pointed to the group's trading premium over its peers in Europe and North America, such as Citigroup, as another potential downside. HSBC now trades at a little above 15 times over last year's earnings, compared with about 11 times of Citigroup and 13 times of Deutsche Bank. On Tuesday night the Hong Kong Monetary Authority bought $1.32 billion in Hong Kong dollars during London trading after the currency slid to the $7.80 peg level against the US dollar, the first time in nearly a month that the de facto central bank had to step in to defend the value of the local unit. Several brokers interpreted the action as the latest sign that a huge funds outflow was about to begin. Peter Pak, vice-president at BOCI Research, said the outflow would have a 'material effect' on the market. 'The last time we had this level of funds flowing out, the stock market reacted quite heavily. There could be a lot of uncertainties in the short term,' he said. Tung Tai Securities researcher Kenny Tang Sing-hing said that given the outflow and expectations that the United States Federal Reserve would raise interest rates by another 25 basis points at its March 22 meeting, there was now more pressure on Hong Kong banks to raise interest rates. 'Given the differences between the Hong Kong and US interest rates the next Hong Kong rate hike is likely to be of pretty large magnitude,' Mr Tang said. 'A drastic increase will almost certainly do some damage to banking and property stocks. In my opinion this can be an even more destabilising factor than HSBC's results.' The market will also keep a close eye on Sun Hung Kai Properties, which unveils its full-year results this afternoon. Mr Tang said that while the market had prepared for strong growth from Hong Kong's largest property developer, a positive surprise could still lead to a small-scale rebound for property stocks. SHKP fell 1.37 per cent to $71.50. The HSI hit an intraday low of 13,817 yesterday, driven by the Sinopec share placement, as turnover reached $34.6 billion, its highest level in nearly 13 months. News of Exxon Mobil's sale of its entire 3.16 billion H shares in Sinopec, after similar actions by BP and Shell, wiped 153.18 points, or 2.98 per cent, off the H-share index, which ended at 4,984.9. While Sinopec sustained the heaviest casualties, having dropped 4.96 per cent to $3.35, other energy stocks also suffered huge blows, with CNOOC falling 3.84 per cent to $4.375 and PetroChina losing 4.56 per cent to $4.70. 'If you look in the long term, Exxon's move actually got rid of a lot of the uncertainties as everybody knew this was inevitable after the other strategic investors had already reaped their profit and left,' Mr Tang said. 'You can say the same thing about [Mr Tung's resignation] since that also would clear a lot of uncertainties, while a new leader would always give people new hope and that will definitely create better sentiment.' Coinciding with rumours of Mr Tung's departure was a 1.74 per cent gain to $34.90 of OOIL, the shipping company owned by Mr Tung's family.