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Hong Kong stock selloff pares best quarterly advance

Hong Kong - Hong Kong stocks slumped, trimming the benchmark index’s best quarterly performance in seven years, as concern about the health of Germany’s biggest lender spurred declines in financial companies.

The Hang Seng Index dropped 2.1% as of 3:23, paring its gain since the end of June to 12%. Bank of Communications Company led a measure of financial companies lower, sliding 3.8%. Property companies fell for a second day, with China Resources Land tumbling to a one-month low.

A measure of Chinese companies traded in Hong Kong tumbled 2.3%, while the Shanghai Composite Index climbed 0.2% on the last trading day before a week-long holiday.

Deutsche Bank shares tumbled as much as 8% on Friday after Bloomberg News reported that some hedge funds were moving to reduce their financial exposure to the bank, which has been struggling to convince investors that it has the funds to deal with legal bills tied to past misconduct.

The Hang Seng Index has rallied the most in Asia this quarter as inflows swelled via an exchange link with Shanghai and traders scaled back bets for higher US borrowing costs.

Mainland markets will be shut all next week for holidays, while the connect is closed until October 11.

Running for cover

"People fear that if Deutsche Bank fails it will bring another global financial crisis," said Francis Lun, chief executive officer of Geo Securities in Hong Kong.

"There’s a lot of profit taking. People are running for cover on the last day of the third quarter to lock in their profits."

The Hang Seng Index dropped to 23 243.03. The gauge trades at 12.6 times reported earnings, approaching the highest level in five years.

Casino operator Sands China rose the most in the index this quarter with a more than 30% rally, while technology giant Tencent Holdings accounted for the largest portion of the measure’s gain.

The Hang Seng China Enterprises Index has gained 10% this quarter, while the Shanghai Composite has eked out a 2.6% increase. Net buying of Hong Kong shares through a link with Shanghai totalled 58.7bn yuan ($8.8bn) this month, compared with purchases of less than 1.75bn yuan in the other direction.

Manufacturing gauge

"If there’s no liquidity coming from China that means the market may weaken a little bit so it may test on the downside," said Steven Leung, executive director at UOB Kay Hian (Hong Kong).

The sell-off triggered by Deutsche Bank concerns is an excuse to take profit, he said. "This is only short-term noise for the market."

A manufacturing index by Caixin Media and Markit Economics rose to 50.1 for September from 50 last month to match analyst estimates. In Hong Kong, data on retail sales are due after the market close.

Analysts expect August sales by value plunged 6.9% from a year earlier in the 17th month of declines, as the city saw fewer visitors.

The yuan was little changed before it joins the International Monetary Fund’s Special Drawing Rights this Saturday. The SDR, created in 1969, gives IMF member countries who hold it the potential right to obtain any of the currencies in the basket - currently the dollar, euro, yen and pound - to meet balance-of-payments needs.

Shenzhen link

MSCI Inc. said it is continuing to monitor China’s mainland stock market for potential inclusion in its global indexes and has seen some positive developments.

The start of a stock trading link between Hong Kong and Shenzhen could help address repatriation issues international investors face, while the number of suspended mainland shares has dropped marginally, the index provider said in a statement on Thursday.

Bank of Communications fell the most in two weeks, while Bank of East Asia retreated 2.6%. Real estate companies extended their drop, with China Resources Land retreating 8.1% for the week.

China Longyuan Power Group Corporation, the nation’s biggest wind farm operator, tumbled 8.8% to lead losses on the H-share gauge amid heavy volume.

China’s top economic-planning agency will cut renewable-energy tariffs, a report on Escn.com, the website of the China Industrial Association of Power Sources said on Thursday, citing a government document it obtained.

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