Bloomberg News

Asian Stocks Advance Third Day on Optimism Over Europe

July 30, 2012

Asian stocks headed for the biggest three-day gain since December, as financial firms advanced amid optimism European policy makers will support the monetary union and after companies including Konica Minolta (4902) Holdings Inc. reported earnings.

Commonwealth Bank of Australia, Australia’s biggest lender by market value, gained 1.8 percent in Sydney after the cost to protect Asian bonds against default declined. Konica Minolta, an imaging-equipment maker that gets 28 percent of its sales in Europe, jumped 5.8 percent in Tokyo after operating profit almost doubled from a year earlier. Iluka Resources Ltd. surged 9.2 percent in Sydney after Morgan Stanley raised the mining company’s investment rating.

The MSCI Asia Pacific Index added 1.2 percent to 117.32 as of 7:33 p.m. in Tokyo, with almost three stocks rising for each that fell. It’s up 3.9 percent over the past three days, the biggest such gain since Dec. 5. Nine of the 10 industry groups rose on the index.

“There is a strong political and financial will for the euro,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian unit. The Swiss bank has about $1.5 trillion in assets under management. “Actions that address the EU challenges will create the opportunity for a sustainable rally ahead.”

The MSCI Asia Pacific Index fell 10 percent from this year’s high on Feb. 29 through July 27 amid concern Europe’s sovereign-debt crisis will worsen and China’s economy is slowing. The regional benchmark index traded at 11.7 times estimated earnings at the end of last week, compared with 13.5 for the Standard & Poor’s 500 Index and 11 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Earnings Results

Japan’s Nikkei 225 Stock Average rose 0.8 percent as the busiest two weeks of earnings season started. Konica Minolta jumped 5.8 percent to 550 yen after first-quarter operating profit surged 94 percent.

Almost half of the 1,671 companies in the Topix Index, the country’s broadest measure of equity performance, have more cash than debt on their balance sheets, a record. At the same time, the index’s 75 percent drop since 1989 pushed prices to 0.86 times book value, 4 percent from a two-decade low, data show. The Topix rose 0.7 percent today.

South Korea’s Kospi Index advanced 0.8 percent even after manufacturers’ confidence dropped to the lowest level in more than three years. Australia’s S&P/ASX 200 gained 0.9 percent, while New Zealand’s NZX 50 Index increased 0.5 percent.

Hong Kong’s Hang Seng Index rose 1.6 percent while China’s Shanghai Composite Index fell 0.9 percent. Singapore’s Straits Times Index added 1.1 percent.

Bond Purchases

Futures on the S&P 500 fell 0.2 percent today. The gauge rose 1.9 percent on July 27 amid expectation Europe may move toward a new round of bond purchases to ease borrowing costs in Spain and Italy.

Asian equities today extended a global rally after German Chancellor Angela Merkel and French President Francois Hollande said their countries are “bound by the deepest duty” to keep the euro area intact.

Two central bank officials said ECB President Mario Draghi will hold talks with Bundesbank President Jens Weidmann to overcome the biggest stumbling block to new measures including bond purchases. The ECB is scheduled to meet on Aug. 2.

“It seems we can avoid the worst-case scenario for now, and that is a combination of the worsening debt crisis in Europe and a global economic downturn,” said Masahiko Sato, an analyst at Nomura Holdings Inc. (8604), Japan’s biggest brokerage by market value. “Europe’s woes will stay with us for a long time, and we need to be on guard.”

Banks Rise

Banks and insurers accounted for 38 percent of the gain on the MSCI Asia Pacific measure as concern eased that Europe’s crisis will derail the global financial system. The Markit iTraxx Asia index of credit-default swaps from 40 investment- grade borrowers outside Japan dropped about 7 basis points to 163.6 basis points on July 27, Royal Bank of Scotland Group Plc prices show.

Commonwealth Bank of Australia gained 1.8 percent to A$57.20. Industrial & Commercial Bank of China Ltd. rose 1.9 percent to HK$4.32 in Hong Kong.

In the U.S., the Federal Open Market Committee will announce a policy decision on Aug. 1 after a report last week showed the economy expanded at a slower pace in the second quarter, giving the central bank scope to add to stimulus measures to spur growth.

Of the 1,007 companies listed on the MSCI Asia Pacific Index, 272 firms are scheduled to post earnings this week, according to data compiled by Bloomberg. Of the 161 companies to have reported so far and for which Bloomberg had earnings estimates, more than half failed to meet the projection, the data show. Earnings per share at companies on MSCI Asia Pacific Index are expected to grow 20 percent this fiscal year.

Iluka Resources soared 9.2 percent to A$9.50, the biggest gain on the Asia-Pacific index, after its investment rating was raised to equal-weight at Morgan Stanley following recent share price weakness.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net

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


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