Bloomberg News

Asian Stocks Decline for Second Week on U.S. Debt Deal Impasse

July 29, 2011

July 30 (Bloomberg) -- Asian stocks dropped for a second week in July, trimming the regional benchmark index’s first monthly advance since April, as U.S. lawmakers failed to break a deadlock over raising the federal debt limit and China increased lending restrictions to local governments.

Li & Fung Ltd., the largest supplier of toys and clothes to retailers including Target Corp. and Wal-Mart Stores Inc., sank 8.7 percent in Hong Kong on speculation shipments to the U.S. will weaken. Nintendo Co., the maker of the Wii game consoles, slumped 18 percent after slashing its full-year profit forecast by 82 percent. China Vanke Co., the nation’s biggest developer, fell 3.2 percent in Shenzhen after the government prohibited banks from renewing loans to local financing vehicles.

The MSCI Asia Pacific Index slid 1.6 percent as better- than-estimated earnings from AIA Group Ltd. and Cheung Kong Infrastructure Ltd. were overshadowed by concern the U.S. may default on its debt if lawmakers can’t reach an agreement on raising the government’s borrowing limit by Aug. 2. For the month, the gauge increased 2.6 percent after European leaders announced steps toward easing the region’s sovereign debt crisis.

“It’s unbelievable, these guys are not just playing with financial markets but their own constituents’ jobs,” said Sydney-based Shane Oliver, head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “It’s certainly adding to stock-market nervousness. I think they will eventually get a deal that avoids massive spending cuts or default, but the risk is growing that they won’t.”

Australian Inflation

Japan’s Nikkei 225 Stock Average sank 3 percent through the week. South Korea’s Kospi index declined 1.8 percent. China’s Shanghai Composite Index dropped 2.5 percent. Hong Kong’s Hang Seng Index was little changed.

Australia’s S&P/ASX 200 Index slumped 3.9 percent as a report published on July 27 showed the nation’s inflation rate gained more than economists forecast last quarter, increasing the chance that Reserve Bank of Australia Governor Glenn Stevens will resume tightening policy.

The Standard & Poor’s 500 Index sank 3.9 percent as House Speak John Boehner urged Republican leaders to rewrite a proposal to raise the U.S. debt ceiling for the second time this after scrapping a scheduled July 28 vote on the plan when he didn’t get enough support from his own party.

Exporters Drop

Exporters to the U.S. declined. Li & Fung, which counts the U.S. as its biggest market, dropped 8.7 percent to HK$12.96 in Hong Kong. Honda Motor Co., the Japanese carmaker that gets about 44 percent of sales from North America, sank 4.8 percent to 3,080 yen. James Hardie Industries SE, the biggest seller of home siding in the U.S., decreased 3.9 percent to A$5.73 in Sydney.

Nintendo, the world’s largest maker of video-game machines, slumped 18 percent to 12,290 yen in Tokyo. The company unexpectedly slashed its full-year profit forecast 82 percent to 20 billion yen ($258 million) after declining demand for its new 3-D handheld player led the company to cut prices of the product.

Sony Corp., Japan’s largest exporter of consumer electronics, tumbled 7.3 percent to 1,947 yen after the company cut its annual profit forecast following a slump in demand for televisions in U.S. and Europe.

Banks fell this week amid concern a cut in the U.S. credit rating will further roil credit markets already hit by the prospect of Greece’s sovereign debt crisis spreading across Europe. Standard & Poor’s cut Greece’s credit rating, saying the nation will partially default on its debt even after European leaders agreed to a second bailout package, and Moody’s Investors Service said yesterday it has placed Spain’s ranking under review for a potential downgrade.

Debt Talks

HSBC Holdings Plc, Europe’s No.1 lender by market value, slid 1.9 percent to HK$76.55. Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank by market value, lost 3.7 percent to 392 yen. Commonwealth Bank of Australia, the nation’s biggest lender, declined 2.5 percent to A$49.27 in Sydney.

“The outcome of U.S. debt talks was one of the big concerns for investors, so this will trigger a mini sell-off in stock markets,” said Prasad Patkar, who helps manage the equivalent of $1.7 billion at Sydney-based Platypus Asset Management Ltd. “Failure to reach a debt deal would jeopardize the U.S.’s credit rating, and this has the potential to cause a seizure in global credit markets.”

China Lending Clampdown

Chinese developers and lenders after the China Banking Regulatory Commission said July 28 banks are prohibited from moving their loans off their balance sheets through trust firms, wealth-management services or bill financing.

China Vanke declined 3.2 percent to 8.15 yuan in Shenzhen. Poly Real Estate Group Co., China’s second-biggest real estate company, dropped 2.3 percent to 10.47 yuan in Shanghai. Agile Property Holdings Ltd., which builds villas and apartments in the southern Chinese city of Guangzhou, fell 2 percent to HK$12.60 in Hong Kong.

The country’s railway companies tumbled on concern a deadly high-speed train accident on July 23 in the eastern part of the country will prompt the government to slow construction and reduce investment.

China Railway Construction Corp., builder of more than half of the nation’s rail links since 1949, tumbled 18 percent to HK$4.78 in Hong Kong. CSR Corp., the largest train maker, plunged 18 percent to HK$5.67. China CNR Corp., the second- largest, sank 14 percent to 5.59 yuan in Shanghai.

Cheung Kong Infrastructure

Among stocks that advanced, AIA Group, the third-largest Asia-based insurer by market value, jumped 6.5 percent to HK$28.65 in Hong Kong this week. The company reported a stronger-than-estimated 24 percent increase in first-half net income to $1.31 billion from a year earlier, beating the average estimate of $1.09 billion by five analysts surveyed by Bloomberg.

Cheung Kong Infrastructure, the roads and utility company controlled by billionaire Li Ka-shing, climbed 5.5 percent to HK$44.90 after posting a 96 percent increase in first-half net income to HK$4 billion ($510 million) from a year earlier. That compares with a median estimate of HK$3.45 billion in a Bloomberg survey of three analysts.

Of the 255 companies in the MSCI Asia Pacific Index that reported earnings from July 11 through 7 p.m. in Hong Kong on July 29, 115 companies beat analyst estimates, while 87 had fallen short.

The regional benchmark index lost 0.7 percent this year through yesterday, compared with a gain of 2.8 percent by the S&P 500 and a drop of 3.8 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 10.8 times for the Stoxx 600.

--With assistance from Anna Kitanaka in Tokyo. Editors: Nick Gentle, Paul Tighe

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