Bloomberg News

Asian Stocks Drop on Concern Central Banks Will Raise Rates

June 10, 2011

June 10 (Bloomberg) -- Asian stocks dropped, dragging the regional benchmark index to its longest streak of weekly losses since October 2008, on concern the region’s central banks will keep raising interest rates to tame inflation even amid signs the global economic recovery may be faltering.

Lotte Shopping Co., South Korea’s biggest department-store owner by market value, slipped 1.5 percent in Seoul after the nation’s central bank raised interest rates for the third time this year. SAIC Motor Corp., a Chinese automaker, dropped 1.7 percent after passenger car sales fell for the first time in two years. Hang Lung Properties Ltd. led declines among Hong Kong developers on speculation the real estate market will weaken.

“We’re still risk averse,” said John Woods, Hong Kong- based chief Asian strategist at Citigroup Inc.’s private bank. “A global slowdown is underway. Monetary policy in developed markets will remain loose and Asian central banks will only switch to a neutral bias once inflationary pressures are seen to ease.”

The MSCI Asia Pacific Index dropped 0.3 percent 132.29 as of 8:08 p.m. in Tokyo, erasing earlier gains of as much as 0.7 percent. About three stocks fell for every two that rose in the gauge, which is set for a 1.3 percent drop this week. Through yesterday, the measure has lost about $407 in market value since this year’s peak on May 2, amid disappointing economic data, capped by a jobs report last week that showed U.S. companies hired fewer workers than estimated.

Monetary Tightening

South Korea’s Kospi Index slid 1.2 percent, erasing gains of as much as 1.1 percent, after the country’s central bank raised interest rates for a third time this year to rein in inflation that exceeds its target range.

Lotte Shopping dropped 1.5 percent to 516,000 won in Seoul. Hyundai Motor Co., South Korea’s biggest carmaker by market value, slipped 1.6 percent to 223,000 won. Samsung Electronics Co., the world’s largest maker of televisions and flat-screen display panels by sales, lost 1.6 percent to 851,000 won.

Hong Kong’s Hang Seng Index declined 0.8 percent after Market News International quoted an adviser to the People’s Bank of China, as saying China should stick to its monetary tightening bias. A government report due next week is expected to show the country’s inflation accelerated in May. China’s Shanghai Composite Index added 0.1 percent, after falling as much as 1.2 percent earlier.

Japan’s Nikkei 225 Stock Average advanced 0.5 percent, while Australia’s S&P/ASX 200 Index added 0.3 percent.

Key Concern

“Investors will remain cautious until we see a clearer picture regarding Europe’s sovereign debt crisis and the U.S. economic slowdown,” said Hong Kong-based Yoji Takeda, who helps manage $1.1 billion at RBC Investment Management (Asia) Ltd. “Inflation in Asia also remains a key concern.”

China should raise interest rates to stabilize inflation expectations and further curb speculation in the property market, Market News quoted Xia Bin, an adviser to the People’s Bank of China, as saying. The nation’s consumer prices are forecast to rise 5.5 percent in May from a year earlier, the fastest pace since July 2008, according to the median estimate of economists surveyed by Bloomberg News.

“The central bank is very likely to raise interest rates this month, which will worsen the liquidity situation,” said Pang Aihua, a bond analyst in Beijing at China Citic Bank Co.

Passenger-car Sales

SAIC Motor declined 1.7 percent to 17.07 yuan in Shanghai. Jiangling Motors Corp., the Chinese commercial vehicle partner with Ford Motor Co., slumped 0.6 percent to 18.74 yuan. Guangzhou Automobile Group Co., a partner of Honda Motor Co., slid 2.2 percent to HK$8.05 in Hong Kong.

Passenger-car sales fell 0.1 percent from a year earlier to 1.04 million units in May, the China Association of Automobile Manufacturers said yesterday after the market closed. The last time sales declined was in January 2009, when car purchases dropped 7.8 percent. Total vehicle sales decreased 4 percent in May, according to the statement.

Futures on the Standard & Poor’s 500 Index fell 0.3 percent today. In New York yesterday, the index gained 0.7 percent, snapping a six-day streak of declines, after consumer confidence rose for a third consecutive week and record exports and lower oil purchases unexpectedly helped narrow the country’s trade deficit.

The Bloomberg Consumer Comfort Index climbed to minus 45.9 in the period to June 5, the best showing since the end of April, from the prior week’s minus 47.1. A reading of minus 100 indicates every respondent held a negative view and a reading of zero means sentiment is evenly split.

The U.S. trade deficit shrank 6.7 percent to $43.7 billion in April, the lowest since December, Commerce Department figures showed yesterday. The gap was projected to widen to $48.8 billion, according to the median forecast of 75 economists surveyed by Bloomberg News.

‘Bargain Hunting’

“The U.S. economy isn’t strong, but it’s improving,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “Investors are trying to resist the urge to stay clear of risk assets so you’ll probably see some bargain hunting.”

Hong Kong developers declined after a property near the city center sold at a discount to pre-auction estimates. Cheung Kong (Holdings) Ltd., controlled by billionaire Li Ka-shing, paid HK$11.65 billion ($1.5 billion), 10 percent less than the HK$13 billion median of five estimates in a Bloomberg News survey, for a site about a 10-minute drive from the Central business district.

Cheung Kong fell 1.5 percent to HK$115.20. Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, slipped 2.1 percent to HK$114. Hang Lung, Hong Kong’s fourth- largest real estate company by sales, sank 2.3 percent to HK$30.15.

Techs Slump

The MSCI Asia Pacific Index slid 3.7 percent this year through yesterday, compared with a gain of 2.5 percent by the S&P 500 and a drop of 1.5 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 13.4 times estimated earnings on average, compared with 13 times for the S&P 500 and 11 times for the Stoxx 600.

A gauge of information technology companies had the biggest decline among the 10 industry groups in the MSCI Asia Pacific Index. All but four of the gauge’s sub-indexes dropped. roups in the MSCI gauge.

HTC Corp. tumbled 6.8 percent to NT$1,165 in Taipei after Goldman Sachs Group Inc. removed the maker of smartphones from its so-called conviction buy list, saying the company could face “mild headwinds.”

Hynix Semiconductor Inc. slumped 7 percent to 26,700 won in Seoul even after the chipmaker rejected speculation it plans to sell new shares. Creditors of the company plan to ask Hynix to consider selling new stock, in addition to part of their combined 15 percent stake in the world’s second-largest maker of computer memory chips, Ryu Jae Han, Chief Executive Officer of Korea Finance Corp., said in a phone interview after market close.

--With assistance from Norie Kuboyama and Toshiro Hasegawa in Tokyo. Editors: Nick Gentle, Jason Clenfield.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.


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