Bloomberg News

Asia Stocks Fall as Concern Over Europe’s Debt Crisis Deepens

October 04, 2011

Oct. 4 (Bloomberg) -- Asian stocks fell, driving a regional benchmark gauge toward its lowest close in more than two years, as disagreement among policy makers over how to resolve Europe’s debt crisis dimmed the outlook for exporters and banks.

Esprit Holdings Ltd., a clothier that counts Europe as its biggest market, dropped 4.8 percent in Hong Kong. Samsung Electronics Co., which gets a fifth of its sales in Europe, lost 1.4 percent in Seoul. Mitsubishi UFJ Financial Group Inc., Japan’s No. 1 listed lender by market value, sank 3.8 percent in Tokyo. Mitsubishi Corp., Japan’s biggest commodities trader, slumped 5.7 percent as oil and metal prices tumbled.

The MSCI Asia Pacific Index fell 2.2 percent to 107.7 as of 5:31 p.m. in Mumbai, extending its biggest quarterly decline in almost three years. The measure closed at the lowest level since July 2009 as benchmark indexes worldwide have dropped more than 20 percent from their peaks, entering a so-called bear market. Asian stocks also fell after Goldman Sachs Group Inc. cut its forecast for earnings expansion in Asia excluding Japan.

“Fear is still in the driver’s seat,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “With Europe sliding into recession, credit markets continue to worsen, and that will affect growth in Asia by reducing export demand. There’s this worry that Europe is going to implode and drag down the U.S. with it.”

About two stocks fell for each that rose in the MSCI Index and all 10 industry groups declined, led by energy shares.

Nikkei, Hang Seng

Japan’s Nikkei 225 Stock Average fell 1.1 percent. South Korea’s Kospi Index slumped 3.6 percent. Australia’s S&P/ASX 200 dropped 0.6 percent after the Reserve Bank of Australia kept its benchmark interest rate unchanged. Hong Kong’s Hang Seng Index fell 3.4 percent.

Futures on the Standard & Poor’s 500 Index declined 1.3 percent today, having earlier risen as much as 0.7 percent. In New York yesterday, the index fell 2.9 percent as concern over the Greek debt crisis and a slump in the stock price of Bank of America Corp. offset a rebound in manufacturing and construction spending. The measure closed under 1,100 for the first time in more than a year, putting the gauge within 1 percent of a bear market.

Bank of America slumped 9.6 percent to below $6 in New York trading for the first time in 2 1/2 years as concern about Europe’s debt crisis spurred financial-stock declines on both sides of the Atlantic. Financial shares are under pressure as European regulators struggle to quell concern that their lenders may be hurt by the sovereign-debt crisis.

Exporters, Banks

Asian exporters and banks fell today. Esprit slumped 4.8 percent to HK$9.39 in Hong Kong. Samsung slid 1.4 percent to 828,000 won in Seoul, and Honda Motor Co., a Japanese carmaker that gets more than 80 percent of its revenue abroad, slid 2.8 percent to 2,202 yen in Tokyo.

Mitsubishi UFJ Financial Group lost 3.8 percent to 331 yen, leading Asian banks lower. In Sydney, National Australia Bank Ltd., the country’s fourth-largest bank by market value, slid 0.8 percent to A$21.46.

German Finance Minister Wolfgang Schaeuble opposed moves to further scale up the European Financial Stability Facility until the final three countries approve the fund’s latest upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the fund to 440 billion euros ($581 billion).

Multiple Fronts

Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros in credit risk.

“If we don’t get a resolution in Greece, we may see a disorderly default,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., which oversees the equivalent of $68 billion in assets. “The politicians are all over the place. Stocks are pricing in a scenario where the financial crisis spreads in Europe, the U.S. economy worsens, and it leads to a deterioration in the global economy.”

Separately, Goldman Sachs cut its forecast for earnings growth in Asia ex-Japan after lowering its outlook for global economic expansion. Per-share earnings may grow 10 percent this year and 7 percent next year, lower than an earlier prediction of 11 percent growth for both years, analysts led by Timothy Moe wrote in a report today.

Bear Market

More than $10 trillion was wiped from global equity markets in the third quarter. Benchmark measures for 36 of 45 nations in the MSCI All-Country World Index posted declines of 20 percent or more from their peaks, meeting the common definition of a bear market, according to data compiled by Bloomberg. Besides the U.S., only two other developed markets -- the U.K. and New Zealand -- haven’t dropped 20 percent or more from their most- recent highs.

Mitsubishi Corp. slumped 5.7 percent to 1,429 yen in Tokyo after oil prices slid. Inpex Corp., Japan’s No. 1 energy explorer, declined 3.6 percent to 455,500 yen. Cnooc Ltd., China’s largest offshore energy explorer, lost 6.8 percent to HK$11.34 in Hong Kong.

Oil for November delivery tumbled 2 percent to $77.61 a barrel, the lowest level in more than a year, in New York yesterday on concern that Greece will default on debt payments, leading to slower global economic growth and lower fuel consumption. Copper futures for December delivery fell below $3 a pound to a 14-month low on signs that demand for industrial metals will wane as economies falter.

New York-traded copper slumped as much as 3.6 percent today and crude slipped as much as 2.2 percent.

The MSCI Asia Pacific Index declined 20 percent this year through yesterday, compared with a 13 percent drop by the S&P 500 and a 19 percent loss by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 11.2 times estimated earnings on average, compared with 11.1 times for the S&P 500 and 9.3 times for the Stoxx 600.

The Asia-Pacific index tumbled 16 percent in the third quarter, the biggest drop since 2008. The measure is down about 23 percent from this year’s high on May 2.

--Editors: John McCluskey, Jason Clenfield.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.net.


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