Hong Kong | Shares decline most in three weeks as lenders slump

A man walks up a flight of stairs towards the entrance of the Shenzhen Stock Exchange building in Shenzhen

Hong Kong shares fell the most in three weeks on speculation recent gains were excessive relative to earnings prospects. Chinese banks and Tencent Holdings Ltd. led declines.
The Hang Seng Index slid 0.8 percent at the close. Industrial & Commercial Bank of China Ltd. dropped for only the second time in 15 days, pacing mainland lenders lower. Tencent, which has the highest weighting on the index, retreated for a second day from a record high. A measure of Hong Kong real estate companies declined 1.2 percent. The Shanghai Composite Index lost 0.1 percent, with a gauge of price swings dropping to the lowest level since 2014.
The Hang Seng Index and the so-called H-share index are among the world’s best performers this month as the approval of an exchange trading link with Shenzhen and bets that central banks will add stimulus boosted demand for the city’s shares. Traders are awaiting Federal Reserve Chair Janet Yellen’s speech Friday for any signs the U.S. monetary authority will turn more aggressive.
“Good news including the Shenzhen stock link has all been priced in and investors are holding back from buying ahead of Friday’s speech by Yellen,” said Ronald Wan, chief executive of Partners Capital International Ltd., a brokerage in Hong Kong.
ICBC, China’s largest lender, slid 2 percent after a momentum indicator rose to levels only seen during one period in the past five years, while China Construction Bank Corp. lost 0.9 percent. Both have erased their 2016 losses as they jumped at least 10 percent this month.
Tencent lost 1.3 percent, the biggest drag on the Hang Seng Index by points. Trading volumes in Hong Kong were a fifth below their 30-day average. The 50-member gauge trades at 11.9 times its reported earnings, near its highest valuation in five years.
China Overseas Land & Investment Ltd. fell 1.1 percent after China Merchants Securities analyst John So downgraded his recommendation on the stock. China Vanke Co. lost 0.5 percent after S&P Global Ratings lowered the outlook on the developer’s corporate ratings to negative from stable.
China Telecom Corp. rose 0.7 percent after reporting first-half profit that beat estimates. Biostime International Holdings Ltd., a provider of pediatric nutrition and baby-care products, slumped to a three-month low after saying regulatory uncertainty may hurt its performance in the second half. Bloomberg

Morgan Stanley fined USD2.4 million

Hong Kong’s securities regulator fined a Morgan Stanley unit HKD18.5 million (USD2.4 million) over internal control failures.
The Securities and Futures Commission said in a statement yesterday that Morgan Stanley Hong Kong Securities Ltd. failed to avoid conflicts of interest, comprehensively document elements of its electronic trading systems, or meet disclosure requirements related to short-selling orders. The control failures, which covered a period between 2013 and 2016, also related to position limits, said the regulator, which reprimanded as well as fined the U.S. bank.
The Morgan Stanley unit co-operated in resolving regulatory concerns, SFC said in the statement. The unit also “agreed to engage an independent reviewer to conduct a forward-
looking review of its internal controls to ensure compliance with the relevant regulatory requirements,” SFC said.
Nick Footitt, a Hong Kong-based spokesman for Morgan Stanley, declined to comment.
Hong Kong’s brokerages and analysts have recently been under SFC scrutiny on the issue of internal controls. In Dec. 2015, JPMorgan Chase & Co. units were fined HKD30 million for regulatory breaches by the firm’s institutional equities business between 2010 and 2013, including breaking a ban on so-called naked short-selling.
The commission in August 2015 fined BNP Paribas SA’s local unit HKD15 million for breaching rules for operating dark pools. The French bank later shut the trading venue.
In stepping up its oversight over the city’s securities industry, the SFC appointed Thomas Atkinson to head its enforcement division for three years starting May 3. Atkinson was most recently the director of enforcement at Canada’s Ontario Securities Commission. Bloomberg