Barefoot Investor: Asia Stocks Drop as Europe Downgrades, China Inflation Sow Doubt

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 2.2 percent in Hong Kong. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, fell 1.2 percent after JPMorgan Chase & Co., the second-largest U.S. bank by assets, said profit declined. BHP Billiton Ltd. (BHP), the world’s No. 1 miner, fell 2.2 percent in Sydney after commodity prices slumped yesterday.

The MSCI Asia Pacific Index dropped 0.9 percent to 116.64 as of 12:39 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 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 0.8 percent, with Olympus Corp. tumbling 13 percent after saying its president will step down. Australia’s S&P/ASX 200 Index slid 0.8 percent and South Korea’s Kospi Index retreated 0.2 percent.

Hong Kong’s Hang Seng Index lost 1.3 percent after the National Bureau of Statistics said consumer prices in China increased 6.1 percent from a year earlier in September, reducing the chances of an end to monetary policy tightening. China’s Shanghai Composite Index slid 1.1 percent.

Esprit dropped 2.2 percent to HK$11.52 in Hong Kong. Billabong International Ltd. (BBG), a global surfwear maker, slumped 2.1 percent to A$3.70 in Sydney. Carmaker Honda Motor Co. lost 2.3 percent to 2,250 yen in Tokyo, while Canon Inc., a camera maker that depends on Europe for about a third of its sales, slipped 2.4 percent to 3,450 yen.

Olympus plunged 13 percent to 2,164 yen after saying President Michael C. Woodford will depart. Chairman Tsuyoshi Kikukawa said the ousted executive didn’t focus enough on bringing employees together toward a common goal. Woodford couldn’t be reached immediately for comment.
Debt Crisis

Futures on the Standard & Poor’s 500 Index lost 0.2 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 followed suit after Spain also 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.

Mitsubishi UFJ fell 1.2 percent to 336 yen in Tokyo, while HSBC Holdings Plc (5), Europe’s biggest lender, sank 1.6 percent to HK$63.65 in Hong Kong.
‘Fiscal Austerity’

“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.

BHP Billiton lost 2.2 percent to A$36.81 in Sydney and rival Rio Tinto Group, the world’s No. 2 miner by sales, declined 1.5 percent to A$68.29. Cnooc Ltd., China’s largest offshore energy producer, slumped 4.6 percent to HK$13.28.
Copper Drops

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 futures rose today, while oil was little changed.

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.

In Hong Kong, China Overseas Land & Investment Ltd., a developer controlled by the nation’s construction ministry, retreated 3 percent to HK$13.78 on concern China may continue with steps to slow inflation. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender by market value, slid 3.4 percent to HK$4.29. (Bloomberg)

1 comments

J.A.B.'s Freelance World said... @ October 24, 2011 at 11:10 AM

This is just one more evidence of the way the economy affects the entire world. That is something that we sometimes forget in the U.S. Financial struggles are global and not just local.

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