HONG KONG/SHANGHAI: Hong Kong shares traded lower early Friday, dragged down by Chinese property-related names after Beijing on Thursday extended home purchase restrictions to more cities and fears about the US and European sovereign debt situations.
Standard & Poor's followed Moody's in warning on Thursday that there is a one-in-two chance it could cut the United States' prized triple-A rating by one or more notches this month if a long-term deal on raising the government's debt ceiling is not reached.
"The market consensus is for the US situation to be resolved, but if the US were to default, the market in Hong Kong is likely to react negatively...at least in the short term...because the Hong Kong dollar is pegged to the US dollar," said Alan Lam, Julius Baer's Greater China equity analyst.
The Hang Seng Index closed down 0.3 percent to 21,883.89 points at midday, with the benchmark set for its first weekly loss in four. The China Enterprise Index lost 0.4 percent.
Chinese Overseas Land and Chinese Resources Land Ltd were the top two losers among benchmark constituents after Beijing on Thursday extended home purchase restrictions to more cities and reminded local governments to keep in place measures to tighten the property market, in its latest move to curb housing inflation.
"We believe both the market consensus and property developers are overly optimistic about a potential market rebound (in the second half of 2011)," said Credit Suisse property analysts in a report on Friday.
Credit Suisse expects companies that have significantly outperformed, such as Longfor Properties Co Ltd and Evergrande Real Estate Group Ltd , to come under selling pressure in the near term. The stocks were down 0.5 and 3.2 percent respectively.
SHANGHAI FLAT, PROPERTY ISSUES WEIGH
Property names also weighed on China shares, with the Shanghai Composite Index closing almost flat at midday, but analysts said strong economic fundamentals in China continued to underpin investor optimism.
The benchmark index closed down 0.04 percent at 2,809.4 points, after Thursday's 0.5 percent increase, while the property index dropped 1.7 percent.
"Recent data showed domestic fundamentals are good, so the negative news will not cause panic selling for now," said Cheng Yi, an senior analyst at Xiangcai Securities in Shanghai.
China Vanke , the country's largest developer by sales, slumped 2.1 percent, while Poly Real Estate Group dropped 3.2 percent.
Cement shares outperformed aided by the Chinese government repeatedly saying it would promote affordable housing and construction of water facilities.
Huaxin Cement Co , among the biggest gainers in the Shanghai market, jumped 5.7 percent, while Fujian Cement rallied 4.5 percent.
Copyright Reuters, 2011
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