Bloomberg News

Asia Stocks Post First Yearly Loss Since ’08 on Debt, Tightening

January 01, 2012

Dec. 31 (Bloomberg) -- Asian stocks posted their first annual decline in three years as sovereign-debt concerns in Europe and the U.S. further cut into an earnings outlook eroded by China’s efforts to fight inflation and Japan’s record quake.

The MSCI Asia Pacific Index fell 0.2 percent this week, taking its annual drop to 23.8 percent, as energy, financial and raw material companies declined. Tokyo Electric Power Co., the utility at the center of the worst nuclear accident in 25 years, retreated 18 percent, extending its 2011 slide to 91 percent amid speculation the company may be nationalized. China Mengniu Dairy Co., the country’s biggest producer of milk, fell 31 percent after a cancer-causing toxin was found in a batch of its products.

Stocks fell this week as the publication of lending statistics by the European Central Bank underscored the magnitude of the region’s debt crisis and as China’s manufacturing contracted for a second month. Losses were tempered by better-than-estimated reports on pending home sales, consumer confidence and durable-goods orders in the U.S.

“This year, the world was swayed by the European debt crisis,” said Takashi Aoki, who helps manage the equivalent of $1.5 billion at Tokyo-based Mizuho Asset Management Co. “More investors think the U.S. economy is firmer and growing slowly, and this will last for a while. Europe has entered a recession but it’s unlikely to deteriorate badly. Emerging countries are transitioning from economic slowdown to faster growth again.”

The Asia Pacific gauge has lost about $1.58 trillion this year amid concern Europe’s debt crisis will drag the global economy into recession. Stocks on Asia’s benchmark are valued at 12.7 times estimated earnings on average, compared with 12.7 times for Standard & Poor’s 500 Index and 10.6 times for the Stoxx Europe 600 Index.

Regional Indexes Slump

Japan’s Nikkei 225 Stock Average rose 0.7 percent this week, paring its annual loss to 17 percent. Hong Kong’s Hang Seng Index dropped 1.1 percent through the holiday-shortened week, taking its 2001 slide to 20 percent. Just four Asian benchmark indexes -- Mongolia’s MSE Top 20 Index, Indonesia’s Jakarta Composite Index, the Philippine Stock Exchange Index and the FTSE Bursa Malaysia KLCI Index -- advanced this year.

The Shanghai Composite Index tumbled 22 percent this year, the most since 2008 and extending last year’s 14 percent plunge, on concern increases in borrowing costs and Europe’s debt crisis will derail economic growth. The index’s 33 percent drop since 2009 makes it the worst performer among the world’s 15 biggest markets.

Kim Jong Il

South Korea’s Kospi index slipped 2.2 percent in the week as North Korea held a funeral for its leader Kim Jong Il. The Kospi fell 11 percent in 2011. Australia’s S&P/ASX 200 Index fell for a second year, dropping 15 percent in 2011, as sagging global demand hurt mining companies and as a currency that’s gained 21 percent in 18 months made other exports less competitive.

Volatility across the region soared in 2011 as first Japan’s earthquake, tsunami and nuclear disaster and then concerns about the U.S. debt ceiling and Europe’s debt crisis roiled markets. The MSCI Asia Pacific Index rose or fell more than 2 percent on 35 days this year, according to data compiled by Bloomberg. That compares with just 10 days in 2010, the data show.

The Nikkei Stock Average Volatility Index hit a record on March 15 in the wake of Japan’s record earthquake and tsunami. In August, gauges of price swings in the Hang Seng Index and the Kospi 200 Index revisited levels not seen since early 2009 as Europe’s crisis and U.S. lawmakers’ disagreement on how to handle their country’s deficit sent markets plunging.

Topix Quake Plunge

Japan’s March 11 quake largely decided the country’s biggest winners and losers for the year. Tokyo Electric, owner of the Fukushima power plant wrecked in the disaster, dropped 91 percent for the biggest decline in the MSCI All Country World Index. SxL Corp., a builder that has benefited from reconstruction work, surged 262 percent.

The Topix plunged 16 percent in the two trading days following the disaster, which left almost 20,000 people dead or missing and disrupted factory production at companies from Toyota Motor Corp. to Sony Corp. That was the biggest two-day decline since the week of the Black Monday global equity-market crash in October 1987.

Japanese stocks have fallen further since then as Europe’s crisis drove gains in the yen on safe-haven demand, cutting into exporters’ overseas revenue, and as floods in Thailand exacerbated supply-chain disruptions.

Hang Seng’s Losers

Shipping companies registered the second-biggest drop on the Topix this year after securities trading firms, whose business has suffered amid plunging markets and declining volumes. Total turnover on the first section of the Tokyo Stock Exchange on Dec. 27 was the lowest since April 2003.

The Hang Seng Index’s retreat this year was led by banks and developers as China intensified measures to curb inflation and property prices. Esprit Holdings Ltd., a clothing retailer, led 2011’s declines in the Hong Kong gauge, falling 73 percent on concern failure to contain Europe’s debt crisis will further undermine the company’s brand in its biggest market.

Among the biggest Chinese stocks traded in Hong Kong, BYD Co., the carmaker partly owned by Warren Buffett, led declines, falling 59 percent this year. The stock dropped 2.1 percent this week to HK$16.84 after announcing a bond sale.

China Railway Group Ltd. and China Railway Construction Corp. were the second- and third-biggest losers in the Hang Seng China Enterprises Index, falling 57 percent and 54 percent respectively after a fatal accident. China Railway Construction dropped 4.3 percent this week while Railway Group slipped 6.2 percent.

China Slowdown

China Mengniu tumbled 31 percent in the year’s final week after moldy feed given to cows led to excessive levels of a potentially carcinogenic toxin, Mengniu said Dec. 28. The company has destroyed the contaminated products and will strengthen its quality control, Mengniu said.

Stock declines have dragged the Shanghai Composite to trade at a record low of 10.6 times estimated earnings, according to weekly data compiled by Bloomberg. The value of stocks traded in Shanghai slumped on Dec. 29 to the least in three years.

“We have high inflation, an economic slowdown and very tight money supply this year and that’s a picture of stagflation that is pretty negative for equities,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The stock market may find a bottom next year given cheap valuations. But in terms of economic fundamentals, we haven’t seen an end to the slowdown.”

--Editors: Darren Boey, Paul Tighe

To contact the reporter on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net

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


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