Financial companies lead declines in Hong Kong stocks

Hong Kong stocks dropped for a third day, led by financial companies, amid concerns that a flood of inflows from the mainland will dry up, the yuan will weaken further and higher US interest rates will weigh on the city’s property market.

The Hang Seng Index closed 0.6 percent lower, capping a 2.3 percent retreat over the three-day period. Bank of Communications Co and Bank of China Ltd tumbled at least 2.8 percent. Less than 9 percent of a daily quota for southbound purchases was used up on Wednesday. A measure of Hong Kong real estate companies declined for a sixth day as Sino Land Co dropped 1.9 percent. The Shanghai Composite percent Index slipped 0.2 percent.

Hong Kong stocks rallied last month as mainland inflows swelled to a record and investors scaled back bets that borrowing costs would rise. Odds of a US rate increase by year-end have since climbed to 67 percent amid speculation a recent surge in oil prices will fuel inflation. China’s central bank weakened the yuan’s reference rate for a sixth day, the longest run of cuts in nine months.

“Southbound flows are trickling down and the size isn’t really up to the market’s expectation. And, the yuan’s depreciation pressure is reemerging as a concern,” said Ronald Wan, chief executive of Partners Capital International Ltd in Hong Kong. After recent gains, the “Hong Kong market will remain very volatile, even though there won’t be any panic selling.”

the decline in the benchmark Shanghai Composite Index on Wednesday