Bloomberg News

Asian Stocks Post Weekly Drop on U.S. Budget, Europe Debt

November 09, 2012

Asian stocks slid this week as investors turned their attention to the U.S. budget debate after President Barack Obama won a second term and the European Commission cut its growth forecast for the debt-saddled region.

Honda Motor Co. (7267), the Japanese carmaker that gets about 44 percent of sales from North America, fell 3.2 percent in Tokyo. Canon Inc., a camera manufacturer that depends on Europe for almost a third of its sales, slid 4 percent. HSBC Holdings Plc (5), the world’s fifth-largest currency trader as ranked by Euromoney Institutional Investor Plc, sank 4.6 percent in Hong Kong as the bank faces criminal charges from U.S. money laundering probes.

The MSCI Asia Pacific Index declined 1.1 percent this week to 121.28. The gauge on Nov. 9 capped its biggest two-day drop in two months on speculation Greece’s bailout will be delayed and as investors focused on the so-called U.S. fiscal cliff of more than $600 billion in automatic tax increases and federal spending cuts expected in January unless Congress can reach a budget compromise.

“Investors have just gotten nervous,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “You’ve got residual concern about the U.S. fiscal cliff and this delay in payments to Greece. The worries were there before. It sounds a bit irrational, but that’s the way markets often work. Once they start going down, the falling momentum triggers more selling.”

Japan’s Nikkei 225 Stock Average (NKY) fell 3.2 percent, while South Korea’s Kospi lost 0.8 percent. Australia’s S&P/ASX 200 Index was little changed. Hong Kong’s Hang Seng Index sank 3.3 percent.

China Congress

China’s Shanghai Composite Index dropped 2.3 percent. The nation’s Communist Party started its 18th Congress on Nov. 8 in Beijing, where delegates will meet over several days to pick a new leader. Xi Jinping will probably replace Hu Jintao as general secretary of the party that’s ruled China since 1949.

Signs China’s economic slowdown is abating may offer some comfort to the nation’s policy makers, which have refrained from further monetary easing since July. Data released Nov. 9 showed factory output and retail sales exceeded forecasts and inflation unexpectedly cooled to the slowest pace in 33 months, signaling the government is boosting growth without driving a rebound in prices.

The data failed to boost investor sentiment as concern Greece’s bailout may be delayed and the looming U.S. fiscal cliff overshadowed signs an economic slowdown in China is abating.

Exporters Decline

Exporters to the U.S. declined. Honda slipped 3.2 percent to 2,388 yen in Tokyo. Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, declined 5.9 percent to 879 yen. Li & Fung Ltd., the supplier of toys and clothes to retailer including Wal-Mart Stores Inc., fell 6.1 percent to HK$12.38 in Hong Kong.

“Investors are taking a step back and thinking the fiscal cliff is looming,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “There’s going to be a protracted battle to resolve it and markets are moving to price that uncertain outcome accordingly.”

The Congressional Budget Office has said the U.S. economy will contract by as much as 0.5 percent next year unless the president can reach a compromise with lawmakers.

The MSCI Asia Pacific gauge gained more than 11 percent through yesterday from this year’s low on June 4 as central banks added stimulus to spur growth and data showed a slowdown in China may be bottoming. The index traded at 13.27 times estimated earnings, compared with 13.26 for the Standard & Poor’s 500 Index and 12.09 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg News.

Europe Growth

Companies that do business in Europe slid after the European Commission cut its growth forecast for the euro zone as the debt crisis ravages southern Europe and gnaws at the economic performance of export-driven Germany. The 17-nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent, the Brussels-based commission said yesterday. It cut its forecast for Germany, Europe’s largest economy, to 0.8 percent from 1.7 percent.

Canon slid 4 percent to 2,485 yen in Tokyo. Nippon Sheet Glass Co., which gets about 41 percent of sales from Europe, dropped 4.1 percent to 70 yen. Hutchison Whampoa Ltd. (13), an operator of ports and telephone companies that counts Europe as its biggest, declined 3 percent to HK$77 in Hong Kong.

Earnings Outlook

Origin Energy Ltd., Australia’s biggest electricity retailer, decreased 6.5 percent to A$10.42 in Sydney, while Nexon Co., a Japanese developer of online games, slumped 23 percent to 766 yen in Tokyo as both companies lower their profit forecasts.

Of the 502 companies on the MSCI Asia Pacific (MXAP) Index that reported quarterly from Oct. 1 through 6 p.m. in Tokyo on Nov. 9, and for which estimates are available, 55 percent missed expectations, according to data compiled by Bloomberg News.

HSBC sank 4.6 percent to HK$74.40. The lender said costs to cover a potential settlement of anti-money-laundering probes in the U.S. where it faces likely criminal charges may significantly exceed the $1.5 billion provision the bank has already set aside.

To contact the reporter on this story: 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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