Bloomberg News

Asian Stocks Drop on Concern Moody’s Will Cut U.S. Debt Rating

July 14, 2011

July 14 (Bloomberg) -- Asian stocks fell for the third day this week after Moody’s Investors Service put the U.S. under review for a credit-rating downgrade, hurting the outlook for exporters reliant on a global economic recovery.

Esprit Holdings Ltd., a global fashion retailer, sank 2.9 percent in Hong Kong. Sony Corp., which gets about a quarter of its revenue from the U.S., lost 1 percent as the yen advanced against the dollar for a fifth day. David Jones Ltd., Australia’s No. 2 department-store chain by sales, tumbled 18 percent in Sydney after cutting its profit and sales forecasts.

The MSCI Asia Pacific Index fell 0.2 percent to 135.84 as of 9:34 p.m. in Tokyo, even after the U.S. Federal Reserve signaled it may add more stimulus to stop economic growth stalling.

“We’re seeing cautious trade as investors assess the likelihood of a U.S. debt de-rating that may increase the chances of a double-dip recession that would hurt Asian exporters,” said Tim Schroeders, who helps manage $1 billion in global equities at Pengana Capital Ltd. in Melbourne. “Moody’s action is a shot over the bows telling U.S. politicians that failure to reach agreement on the debt ceiling would have dire consequences for the economy.”

About twice as many stocks declined as advanced on the Asia-Pacific index today. Last week, the gauge extended its rally for a third week as European Union leaders hammered out proposals to roll over debt to prevent Greece from defaulting and after reports showed retail sales in the U.S. rose in June and China’s latest interest-rate increase sparked speculation a tightening cycle may soon end.

Faster Pace

Japan’s Nikkei 225 Stock Average lost 0.3 percent today. South Korea’s Kospi Index was little changed. Australia’s S&P/ASX 200 Index fell 0.5 percent. New Zealand’s NZX 50 Index slid 0.4 percent, even as a report showed the economy expanded at a faster pace, signaling the nation is recovering from its deadliest quake in 80 years.

Futures on the Standard & Poor’s 500 Index added 0.1 percent today. In New York, the index pared gains to 0.3 percent from as much as 1.4 percent yesterday.

Moody’s Investors Service put the U.S. -- rated Aaa since 1917 -- under review for a credit-rating downgrade for the first time since 1996 on concern the government’s $14.3 trillion debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low.

The rating would likely be reduced to the Aa range and there is no assurance Moody’s would return its top rating even if a default is quickly cured.

Debt Ceiling

“If the debt-ceiling issue isn’t resolved in a suitable timeframe it wouldn’t be great, as regaining the Aaa rating would be hard,” said Matt Riordan, who helps manage close to $7 billion in Sydney at Paradice Investment Management Pty.

Federal Reserve Chairman Ben S. Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.

The Fed last month completed a $600 billion program of Treasury bond purchases that aimed to stimulate the economy by reducing borrowing costs, boosting stock prices and spurring consumer spending.

‘Patchy Growth’

“The Fed is saying growth is patchy and may require stimulus and that they’re prepared to step in to provide it as required,” said Pengana’s Schroeders.

Esprit sank 2.9 percent to HK$22.05 in Hong Kong after CLSA Asia-Pacific Markets also cut its rating to “underperform” from “buy,” citing a disappointing earnings outlook as European and North American retail industries slow. Samsung Electronics Co., which gets about a fifth of its sales in America, lost 1.4 percent to 831,000 won in Seoul.

Sony, an electronics manufacturer, retreated 1 percent to 2,127 yen in Tokyo.

Japan’s currency appreciated to as high as 78.47 against the dollar, compared with 79.56 at the close of stock trading in Tokyo yesterday. A stronger yen reduces income at Japanese companies when overseas revenue is converted into their home currency.

Australian Retailers

David Jones plunged 18 percent to A$3.20 in Sydney, its biggest slide since listing in 1995. Myer Holdings Ltd., Australia’s largest department-store chain by sales, slumped 6.4 percent to A$2.48. Harvey Norman Holdings Ltd., the nation’s biggest furniture and electrical retailer, fell 4.6 percent to A$2.30.

The MSCI Asia Pacific Index lost 1.2 percent this year through yesterday, compared with a gain of 4.8 percent by the S&P 500 and a drop of 2.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.6 times estimated earnings on average, compared with 13.3 times for the S&P 500 and 10.8 times for the Stoxx 600.

Gold producers were among stocks that advanced today. Korea Zinc Co., which produces gold and silver, climbed 5.9 percent to 434,000 in Seoul, while Newcrest Mining Ltd., Australia’s biggest gold producer, gained 2.2 percent to A$39.80. Zijin Mining Group Co., China’s No. 1 gold producer by market value, jumped 5.5 percent to HK$4.39 in Hong Kong.

Gold surged to a record after Moody’s announcement and as talks stalled on Europe’s debt crisis, boosting demand for a safe haven. Bernanke’s comments that additional stimulus may be needed also helped drive gold futures up for the eighth straight day today in New York.

In New Zealand, Vector Ltd., the nation’s largest electricity distributor, climbed 1.2 percent to N$2.54 and Property for Industry Ltd., an investor in warehouses and factory buildings, advanced 1.7 percent to NZ$1.23.

New Zealand’s economy in the first quarter expanded more than twice as much as the central bank forecast. Gross domestic product rose 0.8 percent in the three months ended March 31 from the previous quarter, when it increased a revised 0.5 percent, Statistics New Zealand said in a report today.

--With assistance from Akiko Ikeda in Tokyo. Editors: Nick Gentle, John McCluskey.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net. Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

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


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