Bloomberg News

Asian Stocks Drop as Fed Cuts Forecast; Commodity Shares Slide

June 23, 2011

June 23 (Bloomberg) -- Asian stocks fell, driving the region’s key index lower for the first day in three, after the U.S. Federal Reserve lowered its growth forecast for the world’s biggest economy and amid concern China will raise interest rates.

Kyocera Corp., a maker of mobile phones and solar panels that gets more than 20 percent of its sales in the U.S., slid 1.7 percent in Tokyo. LG Electronics Inc., which gets 30 percent of its revenue in North America, fell 0.6 percent in Seoul. Aluminum Corp. of China Ltd. lost 1.7 percent in Hong Kong after the China Securities Journal said the government should raise interest rates. BHP Billiton Ltd., the world’s No. 1 mining company, sank 1 percent as oil and copper prices fell.

“The Fed’s new forecasts do not have shock value in undercutting the broader consensus, but do confirm a more tepid recovery which may disappoint some pundits,” said Tim Schroeders, who helps manage about $1 billion in global equities at Pengana Capital Ltd. in Melbourne.

The MSCI Asia Pacific Index sank 0.9 percent to 130.73 as of 7:31 p.m. in Tokyo, set for the steepest daily drop in a week. About twice as many stocks declined as advanced on the gauge, which has dropped for the past seven weeks. The index has tumbled 7.1 percent from this year’s May 2 high amid mounting concern about a slowing U.S. economy, Europe’s sovereign debt crisis and China’s steps to curb inflation.

Kospi, Nikkei Drop

Australia’s S&P/ASX 200 Index declined 0.7 percent. South Korea’s Kospi Index slid 0.4 percent. Japan’s Nikkei 225 Stock Average dropped 0.3 percent and Hong Kong’s Hang Seng Index slid 0.5 percent.

Futures on the Standard & Poor’s 500 Index slipped 0.5 percent today. The index lost 0.7 percent to 1,287.14 yesterday in New York.

LG Electronics slipped 0.6 percent to 80,900 won in Seoul. Kyocera retreated 1.7 percent to 8,140 yen in Tokyo. James Hardie Industries SE, an Australian building materials company that gets more than 70 percent of its sales from the U.S., dropped 0.7 percent to A$5.35 in Sydney.

Nikon Corp., a camera maker that counts North America as its biggest market, retreated 4.9 percent to 1,926 yen. Fujifilm Holdings Corp. dropped 2.2 percent to 2,388 yen after Goldman Sachs Group Inc. removed the maker of copy machines and printers from its “conviction buy” list, citing a weakening outlook for sales of office equipment.

Fed Forecasts

Fed officials lowered their forecasts for U.S. growth and employment this year and next, projecting the economy will expand by between 2.7 percent and 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April. Inflation, excluding food and energy, will be somewhat higher than previously forecast, policymakers said. They said the pace of recovery is likely to “pick up over coming quarters.”

“The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected,” the Federal Open Market Committee said yesterday in a statement. “The committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings.”

“Even though Bernanke agrees the economy has hit a soft patch and should reaccelerate, the Fed did cut its forecasts for growth in both 2011 and 2012,” said James Holt, Sydney-based director of BlackRock Investment Management (Australia) Ltd., which oversees about $40 billion in assets. “This took the wind out of the sail of the recent rally.”

Biggest Drop

The MSCI Asia Pacific Index lost 4.2 percent this year through yesterday, compared with a gain of 2.3 percent by the S&P 500 and a drop of 3 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.4 times estimated earnings on average, compared with 13 times for the S&P 500 and 10.8 times for the Stoxx 600.

All 10 industry groups on the MSCI Asia Pacific Index declined today. BHP Billiton lost 1 percent to A$42.04 in Sydney. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, slid 1.7 percent to A$40.40. PetroChina Co., Asia’s largest oil and gas producer by market value, fell 1.3 percent to HK$10.90 in Hong Kong.

Crude oil for August delivery fell as much as 1.8 percent in New York today. Copper for delivery in three months dropped 0.7 percent in London yesterday.

Belle, New World

Aluminum Corp. lost 1.7 percent to HK$6.25 and Industrial & Commercial Bank of China Ltd., Asia’s largest bank by market capital, declined 1.4 percent to HK$5.72. Belle International Holdings Ltd., a women’s footwear retailer in China, dropped 2.4 percent to HK$15.30.

New World Department Store China, a department-store operator that receives all its revenue from China, declined 1 percent to HK$5.96.

The China Securities Journal said in a front-page editorial the country’s central bank should boost real interest rates, a move that would cool the nation’s lending market.

“People are looking for where they can put their bets for the second-half and there doesn’t seem to be many choices,” said Pearlyn Wong, an investment analyst in Singapore at Bank Julius Baer & Co., which manages about $205 billion in client assets globally.

Kangwon Land Inc., which runs the only South Korean casino open to locals, lost 3.7 percent to 27,450 won in Seoul. The tourism ministry may seek to allow Koreans into gambling venues previously open only to foreigners, the Chosun Ilbo newspaper reported. The tourism ministry’s public relations team declined to comment.

--With assistance from Anna Kitanaka, Akiko Ikeda and Toshiro Hasegawa in Tokyo. Editors: John McCluskey, Nick Gentle.

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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