Bloomberg News

Most Asian Stocks Fall on U.S. Debt Concern; Exporters Drop

July 27, 2011

July 27 (Bloomberg) -- Most Asian stocks dropped, led by exporters and banks, as a political stalemate over raising the U.S. debt ceiling increases concerns the world’s biggest economy could default, stalling the global economic recovery.

Samsung Electronics Co., a South Korean consumer and industrial electronics maker that gets about 85 percent of its revenue abroad, lost 0.6 percent in Seoul. Mitsubishi UFJ Financial Group Inc., Japan’s biggest listed lender, dropped 0.7 percent. Japan Tobacco Inc., Asia’s largest-listed tobacco company by market capitalization, jumped 4.7 percent in Tokyo. Catcher Technology Co. advanced for a second day in Taipei after reporting a gain in net income. Sands China Ltd., Asia’s No. 1 casino operator by market value, surged 9.9 percent after reporting second-quarter profit doubled.

The MSCI Asia Pacific Index climbed 0.01 point, or less than 0.1 percent, to 139.18 as of 7:40 p.m. in Tokyo after falling as much as 0.5 percent. About three stocks fell for every two that rose on the gauge. The measure is on course for a gain this week as forecasts for higher earnings at companies from Canon Inc. to Baidu Inc. countered the U.S. lawmakers struggle to reach an agreement to raise the federal debt limit before an Aug. 2 deadline, increasing concern that the government may default on its debt.

“The primary focus at present is the U.S.-debt-ceiling stalemate and investors will remain nervous until that is resolved,” said Angus Gluskie, who manages about $350 million at White Funds Management in Sydney. “Everyone considers the deadlock will be resolved in the end, but the consequences of not doing so would be very serious for Asia and Asian stock markets.”

Debt Impasse

Japan’s Nikkei 225 Stock Average fell 0.5 percent as the yen strengthened against the dollar, cutting the profit outlook for the nation’s exporters. South Korea’s Kospi index climbed 0.3 percent and Australia’s S&P/ASX 200 Index slipped 0.8 percent.

Hong Kong’s Hang Seng Index fell 0.1 percent, while China’s Shanghai Composite Index gained 0.8 percent.

Futures on the Standard & Poor’s 500 Index declined 0.1 percent today. The index retreated 0.4 percent yesterday in New York, whipsawed by negotiations over the nation’s debt limit.

A House vote on Speaker John Boehner’s two-step plan, which would cut $3 trillion in government spending to raise the U.S. debt ceiling, was postponed amid growing Republican opposition to the measure that the Obama administration has threatened to veto. President Barack Obama’s Office of Management and Budget said it “strongly opposes” the measure and would recommend a veto if it were passed by Congress.

Exporters Decline

Samsung Electronics, maker of the Galaxy mobile phone, slid 0.6 percent to 845,000 won in Seoul, the biggest drag on the Kospi index. Toyota Motor Corp., which counts North America as its largest market, declined 1.2 percent to 3,255 yen in Tokyo, the third-heaviest drag on the MSCI Asia Pacific Index. Honda Motor Co., the automaker that receives 83 percent of its sales from outside Japan, lost 1.7 percent to 3,145 yen.

Banks declined on concern rating agencies may lower their outlook for U.S. debt, roiling credit markets. Both S&P and Moody’s Investors Service are weighing a downgrade of the U.S. credit rating.

The amount of U.S. Treasuries held in Japan was estimated at $912.4 billion at the end of May, the highest level since at least 2000, according to U.S. Treasury data compiled by Bloomberg.

U.S. Downgrade Concerns

Mitsubishi UFJ Financial Group fell 0.7 percent to 403 yen, while rival Sumitomo Mitsui Financial Group Inc. slipped 1.2 percent. Australia & New Zealand Banking Group Ltd., Australia’s third-largest lender by market value, dipped 1.3 percent to A$21.28.

“Investors are protecting themselves in case a resolution is not reached within time,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.

Among stocks that rose, Japan Tobacco gained 4.7 percent to 333,000 yen, extending yesterday’s gains, and was the biggest support to the MSCI Asia Pacific Index.

Vice Finance Minister Fumihiko Igarashi said on July 25 the Japanese government is weighing selling assets including shares in Japan Tobacco to pay for earthquake reconstruction costs. Japan Tobacco plans to buy back some of the shares sold by the government, Citigroup Inc. analyst Nobuyoshi Miura wrote in a Japanese-language report dated July 25.

Catcher Rises

Catcher Technology jumped 6.8 percent to NT$265.50, extending yesterday’s 6.9 percent jump. The company said on July 25 that second-quarter net income rose to NT$2.4 billion ($83.4 million) from NT$839.6 million a year earlier. Credit Suisse Group AG and UBS AG raised their share-price estimates for Catcher yesterday.

Sands China surged 9.9 percent to HK$23.40, the strongest support to the Hang Seng Composite Index. The company said net income rose to $267.4 million in the three months ended June 30 from $133.6 million a year earlier, as gambling surged at its Macau venues.

Indonesian banks were among the most actively traded stocks today. PT Bank Rakyat Indonesia, nation’s second-biggest lender by assets, jumped 3.8 percent to 6,900 rupiah in Jakarta ahead of announcing second quarter earnings tomorrow. PT Bank Mandiri, the No. 2, added 2.6 percent. PT Bank Negara Indonesia, majority owned by the country’s government, climbed 7.2 percent to 4,475 rupiah.

“Historically, banks’ second quarter earnings are better than the first quarter as lending growth is usually small in the first quarter,” said Made Suardhini, an analyst at PT Mandiri Sekuritas in Jakarta. “Every time the earnings results are about to come out people buy the stocks.”

The MSCI Asia Pacific Index rose 1.1 percent this year through yesterday, compared with a gain of 5.9 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 13.7 times estimated earnings on average, compared with 13.4 times for the S&P 500 and 11 times for the Stoxx 600.

--With assistance from Satoshi Kawano in Tokyo and Berni Moestafa in Jakarta. Editors: Nick Gentle, John McCluskey

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; 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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