Bloomberg News

Asian Stocks Drop as Oil Slides; Japanese Utility Shares Rally

June 20, 2011

June 20 (Bloomberg) -- Asian stocks fell, extending a seventh straight weekly decline, as oil traded at a four-month low after European governments failed to agree a loan payout to spare Greece from default. Japanese nuclear-power generators advanced.

BHP Billiton Ltd., Australia’s biggest oil producer slid 1.4 percent in Sydney. Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, lost 2 percent in Hong Kong after Walter Kwok, a former chairman, said the city’s property prices may fall as much as 15 percent by the end of the year. Japanese power companies advanced after the government said it may allow atomic reactors to restart following the worst nuclear accident in 25 years.

The MSCI Asia Pacific Index lost 0.7 percent to 128.75 as of 7:24 p.m. in Tokyo, reversing an earlier advance of as much as 0.7 percent. Material and energy shares declined the most among 10 industry groups tracked by the gauge, while utilities were the biggest gainer. Almost $700 billion has been wiped off the market value of the Asia-Pacific gauge since its high for the year on May 2.

“Europe may well construct a solution to Greece’s debt woes, but the acid test will be whether or not the markets will be convinced that the solution is enduring rather than a Band- Aid,” said Tim Schroeders, who helps manage about $1 billion in global equities at Pengana Capital Ltd. in Melbourne.

Asia’s Benchmark

The Asia-Pacific index lost 1.9 percent last week, completing its seventh straight decline, the longest such run since 2004. Stocks in the Asian benchmark were valued at 13.2 times estimated earnings on June 16, the lowest since April 20, according to data compiled by Bloomberg.

Japan’s Nikkei 225 Stock Average was little changed, erasing earlier gains. Mazda Motor Corp., which makes more than 60 percent of sales outside Japan, climbed 2.1 percent after forecasting a return to profit and Citigroup Inc. raised its rating on Japan’s auto sector to “neutral” from “bearish.”

South Korea’s Kospi Index slipped 0.6 percent after rising as much as 0.8 percent. Australia’s S&P/ASX 200 Index dropped 0.7 percent. China’s Shanghai Composite Index slumped 0.8 percent after Credit Suisse Group AG said the nation’s economy is heading for a “sluggish landing.”

Hong Kong’s Hang Seng Index lost 0.4 percent, extending its decline since an April 8 high to more than 11 percent, beyond the threshold of 10 percent that some analysts view as marking a so-called correction.

Tax Treaty

The Bombay Stock Exchange Sensitive Index dropped 2 percent in Mumbai after the Business Standard reported that India will seek to tax capital gains on investments made through Mauritius, as negotiations on its taxation treaty with the island nation resume after three years.

Futures on the Standard & Poor’s 500 Index slid 0.4 percent today. In New York, the gauge advanced 0.3 percent on June 17 after the U.S. leading indicators index rebounded in May after declining for the first time in almost a year, a sign economic growth may pick up by the end of 2011.

The Conference Board’s gauge of the outlook for the world’s biggest economy in the next three to six months rose 0.8 percent after a revised 0.4 percent decline in April, the New York-based group said on June 17. Economists forecast a 0.3 percent gain, according to the median estimate in a Bloomberg News survey.

Oil Retreats

BHP Billiton dropped 1.4 percent to A$41.36 in Sydney. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, sank 2.2 percent to A$39.91.

Caltex Australia Ltd., the nation’s biggest oil refiner, slumped 6.9 percent to A$10.60 after the company forecast a drop in first-half operating profit, partly because of plant disruptions. S-Oil Corp., a South Korean oil refiner, lost 4.7 percent to 143,000 won in Seoul.

Oil declined for a second day in New York on speculation that Greece’s debt crisis will contribute to lower fuel demand. Crude for July delivery fell as much as 2 percent today in New York, after slipping 2 percent, to $93.01 on June 17, the lowest settlement since Feb. 18. Prices slid 6.3 percent last week.

European governments today failed to agree on releasing a loan payout to spare Greece from default, ramping up pressure on Prime Minister George Papandreou to first deliver budget cuts in the face of domestic opposition.

“We forcefully reminded the Greek government that by the end of this month they have to see to it that we are all convinced that all the commitments they made are fulfilled,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing a seven-hour euro crisis meeting in Luxembourg.

‘Voluntary’ Bail-Out

German Chancellor Angela Merkel retreated from demands that bondholders be forced to shoulder a “substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to avoid disrupting markets.

“We would like to have a participation of private creditors on a voluntary basis,” Merkel told reporters in Berlin on June 17 at a joint press conference with French President Nicolas Sarkozy.

The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 11.5 basis points to 420.5, according to JPMorgan Chase & Co. at 7:30 a.m. in London.

Deteriorating Perceptions

The index is a benchmark for the cost of protecting bonds against default and an increase signals deteriorating perceptions of credit quality.

Sun Hung Kai slid 2 percent to HK$108.90 in Hong Kong, leading property companies lower. Cheung Kong (Holdings) Ltd., Hong Kong’s No. 2 developer, sank 3.8 percent to HK$108.90.

Hong Kong’s government may take more measures to curb property-price gains in the city as “risks” are rising, Financial Secretary John Tsang said in his blog yesterday. Separately, the city’s Chief Executive Donald Tsang said on June 17 home prices are “quite frightening.”

“I wouldn’t be surprised they will fall 10 to 15 percent,” Walter Kwok, former chairman of Sun Hung Kai, said of Hong Kong’s property prices. “We have already seen the peak.”

The MSCI Asia Pacific Index lost 5.9 percent this year through June 17, compared with a gain of 1.1 percent by the S&P 500 and a drop of 3.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 12.8 times for the S&P 500 and 10.8 times for the Stoxx 600.

‘Good Value’

“Shares are starting to look good value, but given the list of worries you can’t rule out further falls,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd, said in an e-mailed note. “Europe and other issues mean there are a lot of balls in the air, and still a lot of worries bubbling away in the background.”

Chubu Electric Power Co. surged 7.9 percent to 1,440 yen in Tokyo. Tohoku Electric Power Co., a power company based in Japan’s tsunami-damaged northeast, soared 10 percent to 1,058 yen. Kansai Electric Power Co. gained 7.7 percent to 1,420 yen.

Trade Minister Banri Kaieda said on June 18 that he may let utilities restart nuclear generators that had been shut for routine maintenance. There are negatives to suspending all nuclear power, Kaieda said, citing potential electricity shortages during Japan’s summer months.

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

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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


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