Bloomberg News

Asia Stocks Drop as Europe Downgrades, China Inflation Sow Doubt

October 14, 2011

Oct. 14 (Bloomberg) -- Asian stocks fell, ending a six-day winning streak for the regional benchmark index, after credit- rating downgrades of Spain and European banks fueled concern the region’s debt crisis slow global growth.

Chinese companies tumbled as a report showed continued high inflation, lessening the chances of monetary-policy easing in the world’s second-largest economy. Esprit Holdings Ltd., a clothier that gets 83 percent of its revenue in Europe, dropped 1.5 percent in Hong Kong. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, fell 1.5 percent after JPMorgan Chase & Co., the No. 2 U.S. bank by assets, said profit declined. BHP Billiton Ltd., the world’s No. 1 miner, fell 2.1 percent in Sydney after commodity prices slumped yesterday.

The MSCI Asia Pacific Index dropped 0.7 percent to 116.89 as of 7:35 p.m. in Tokyo. The gauge climbed 9.7 percent in the previous six days, setting the measure on course for its biggest weekly gain since March after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged last weekend to deliver a plan to recapitalize Europe’s banks and address Greece’s debt crisis.

“Investors are hoping Europe will find a solution to the sovereign-debt crisis, but if that doesn’t happen the market could come back down again,” said Lee King Fuei, a Singapore- based fund manager at Schroders Plc, which oversaw $323 billion as of June 30. “Politically, it’s going to be difficult to find a solution. Governments in the U.S. and Europe are left with limited stimulus options.”

Nikkei, Kospi

Japan’s Nikkei 225 Stock Average fell 0.9 percent, with Olympus Corp. tumbling 18 percent after the company’s board ousted Michael Woodford as president. Australia’s S&P/ASX 200 Index slid 0.9 percent and the Kospi Index increased 0.7 percent, with Nexolon Co., South Korea’s biggest maker of silicon ingots and wafers used in solar cells, surging 30 percent in its trading debut.

Hong Kong’s Hang Seng Index lost 1.4 percent. The Hang Seng China Enterprises Index of Chinese companies dropped 2.2 percent after reports showed the nation’s money supply grew at the slowest pace in almost a decade as inflation stayed above the government’s target, highlighting the risk that efforts to tame prices will trigger a slowdown. China’s Shanghai Composite Index slid 0.3 percent after falling as much as 1.2 percent.

Sino-Ocean Land Holdings Ltd., a developer of properties in China’s north, slumped 10 percent to HK$2.99. China Overseas Land & Investment Ltd., a builder controlled by the nation’s construction ministry, retreated 4.2 percent to HK$13.60 on concern China may continue with steps to slow inflation. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender by market value, sank 4.3 percent to HK$4.25.

“The government is unlikely to loosen monetary policies until the year end as inflation stays at a high level,” said Gao Ting, Beijing-based chief China strategist at UBS AG, said in an interview in Shanghai.

China’s Growth Slowing

Inflation reached a three-year high of 6.5 percent in July compared with a government full-year target of 4 percent. Growth in China is already slipping after tightening moves, with analysts forecasting that data next week will show a 9.3 percent expansion in the third quarter, down from 9.5 percent in the previous three months.

Esprit dropped 1.5 percent to HK$11.60 in Hong Kong. Billabong International Ltd., a global surfwear maker, declined 2.1 percent to A$3.70 in Sydney. Carmaker Honda Motor Co. lost 2.4 percent to 2,248 yen in Tokyo, while Canon Inc., a camera maker that depends on Europe for about a third of its sales, slipped 2.6 percent to 3,445 yen.

Olympus plunged 18 percent to 2,045 yen. Chairman Tsuyoshi Kikukawa will replace Woodford as president due to disagreements over management style, the maker of cameras and medical equipment said in a statement today. Woodford couldn’t be reached immediately for comment.

Debt Crisis

Futures on the Standard & Poor’s 500 Index gained 0.9 percent. The U.S. gauge slipped 0.3 percent in New York yesterday, paring gains from the best rally over seven days since 2009 after JPMorgan reported a 33 percent profit decline as investment banking and trading income slumped and amid speculation equities rose too much on optimism Europe’s debt crisis may be contained.

Asian markets retreated after Spain had its long-term sovereign credit rating cut to AA- from AA by Standard & Poor’s with a negative outlook, the third reduction by S&P in three years. Separately, UBS AG, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc had long-term issuer default grades cut by Fitch Ratings, which put more than a dozen other lenders on watch negative.

Banks in Asia also declined as concern grew that defaults among European nations may trigger a credit crisis similar to the one after Lehman Brothers Holdings Inc. collapsed in 2008.

‘Fiscal Austerity’

Mitsubishi UFJ fell 1.5 percent to 335 yen in Tokyo, while HSBC Holdings Plc, Europe’s biggest lender, slipped 1.5 percent to HK$63.70 in Hong Kong.

“Much uncertainty remains as to how Europe will support its banks, beef up the bailout fund and ensure a controlled ‘default’ of Greece,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd. wrote in a note to clients today. “Fiscal austerity will continue to bear down on growth.”

Stocks in Europe fell yesterday after the European Central Bank said imposing further losses on holders of Greek debt posed a risk to the euro area’s financial stability.

An escalation in Europe’s debt crisis may trigger a selloff in Asian assets and disrupt currency markets, the International Monetary Fund said yesterday. The IMF report came before Slovakia approved Europe’s enhanced bailout fund, completing ratification across the 17 euro countries.

Copper Drops

BHP Billiton lost 2.1 percent to A$36.86 in Sydney and rival Rio Tinto Group, the world’s No. 2 miner by sales, declined 1.5 percent to A$68.30. Cnooc Ltd., China’s largest offshore energy producer, slumped 4.6 percent to HK$13.28.

New York-traded copper futures fell 2.6 percent yesterday, while the London Metal Exchange Index of prices for six metals including copper and aluminum sank 2.4 percent. Crude oil futures in New York slipped 1.6 percent. Copper and oil futures rose today.

The MSCI Asia Pacific Index dropped 15 percent this year through yesterday, compared with a 4.3 percent loss by the S&P 500 and a 14 percent decline by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12 times estimated earnings on average, compared with 12.1 times for the S&P 500 and 10.1 times for the Stoxx 600.

--Editors: Nick Gentle, Jason Clenfield

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

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


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