Hong Kong stocks dropped, dragging the Hang Seng Index to its biggest fall in five weeks, on concern China’s economic expansion will slow after the New York- based Conference Board revised down an estimate for growth.

Li & Fung Ltd., the exporter of toys and textiles that counts Europe as its second-biggest market, declined 4.8 percent on a weaker euro. HSBC Holdings Plc, Europe’s biggest lender by market value, slid 2.1 percent. Cnooc Ltd., China’s biggest offshore oil producer, dropped 3.6 percent after crude prices fell for a second day.
“There are fears earnings in the second half will weaken as margins come under pressure on rising Chinese wages and as exports to Europe decline,” said Michiya Tomita, a Hong Kong- based fund manager for Mitsubishi UFJ Asset Management Co., which oversees more than $64 billion. “If exports to Europe drop sharply, there is a risk of a hard landing in China.”
The Hang Seng Index fell 2.3 percent to 20,248.90 at the close, its biggest slump since May 25. The Hang Seng China Enterprises Index of so-called H-shares of Chinese companies declined 2.7 percent to 11,536.20.
The Hang Seng Index has retreated 4.7 percent this quarter, extending its decline this year to 7.4 percent, as worries about budget deficits in Europe and tighter monetary policy in China dented confidence in the strength of the global economy.
A leading economic index compiled by the New York-based Conference Board rose 0.3 percent in April, less than the 1.7 percent gain that it reported on June 15. The research group said in an e-mailed statement that the previous release contained a calculation error.
A separate survey by the group is expected to show the board’s confidence index in the U.S. fell to 62.5 this month from 63.3 in May, according to a Bloomberg survey before the report today.
Shares of exporters will be under pressure because demand from Europe may drop as governments address their mounting fiscal deficits, Mitsubishi UFJ’s Tomita said. China’s exports face “strong headwinds” in the second half of the year from policy-tightening measures and the European debt crisis, reducing the prospects for a rebound in the stock market, said Citigroup Inc.
(Source: Bloomberg)