Barefoot Investor: Asian Stocks Drop Most in Two Weeks on Europe Debt, Slower Chinese Growth

Asian stocks fell, driving the region’s benchmark index toward its biggest drop in two weeks as Germany damped expectations of a fast resolution to Europe’s debt crisis and China’s economy grew at the slowest pace in two years.

BHP Billiton Ltd. (BHP), the world’s No. 1 mining company, slipped 3.4 percent in Sydney after commodity prices slumped. Sony Corp., which gets about 70 percent of its revenue overseas, dropped 1.7 percent in Tokyo. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, lost 1.8 percent after U.S. banks Citigroup Inc. and Wells Fargo & Co. said quarterly revenue dropped. China Coal Energy Co. plunged 7 percent in Hong Kong.

“The implied lack of urgency by European policy makers will create additional uncertainty regarding a robust, all- encompassing solution to Europe’s growing list of problems,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Increased uncertainty will feed through to investor nervousness and is likely to see risk reduced by investors as they move to lock in gains from the past couple of weeks.”

The MSCI Asia Pacific Index lost 2.2 percent to 116.62 as of 12:19 p.m. in Tokyo, on course for the biggest drop since Oct. 4. About 13 stocks declined for each that advanced after Steffen Seibert, spokesman for German Chancellor Angela Merkel, said Europe’s leaders won’t provide the quick end to a debt crisis that global policy makers are pushing for at an Oct. 23 summit.
China Growth

The measure deepened declines today after a report showed China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, as the central bank tightened monetary policy and export demand weakened. Policy makers have raised interest rates five times over the past year, curbed lending and imposed limits on home purchases to rein in property and consumer prices.

“Some investors probably like to see better headline numbers, but it’s just unrealistic to expect China to grow double-digit,” said Diane Lin, a Sydney-based Pengana fund manager.

All 10 industry groups on the Asia-Pacific stock gauge retreated today, led by raw-material stocks. The MSCI Asia Pacific Index climbed 3.4 percent last week after Merkel and French President Nicolas Sarkozy pledged to deliver a plan to recapitalize Europe’s banks and address Greece’s debt crisis.
‘Complex Issue’

“The reality is that we’re dealing with a complex multi- year issue that has a lot of stakeholders involved and can’t be resolved overnight,” said Matt Riordan, who helps manage close to $6.6 billion in Sydney at Paradice Investment Management Pty.

Japan’s Nikkei 225 Stock Average fell 1.5 percent today and Australia’s S&P/ASX 200 Index lost 1.8 percent. South Korea’s Kospi Index declined 1.6 percent. China’s Shanghai Composite Index slid 1.6 percent, while Hong Kong’s Hang Seng Index slumped 3.4 percent.

The MSCI Asia Pacific Index climbed 2.1 percent yesterday after Group of 20 finance chiefs meeting in Paris endorsed parts of a plan to contain Europe’s debt crisis. Optimism the region’s officials were developing a plan to help banks weather losses on sovereign debt also fueled gains last week in stocks and the euro.

Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The gauge retreated 1.9 percent in New York yesterday after Germany said European Union leaders won’t provide a complete fix to the euro-area debt crisis. The S&P 500 rose 6 percent last week.
Heavy Selling

Germany “doused expectations there would be a definitive solution at this weekend’s European summit,” said Cameron Peacock, a market analyst at IG Markets in Melbourne. “So anticipated and hoped for has been this solution that any disappointments, setbacks during this current ‘gestation period’ are going to be met with heavy selling.”

New York-traded copper futures dropped 0.9 percent yesterday, while the London Metal Exchange Index of prices for six metals including copper and aluminum slipped 0.6 percent. Crude oil futures in New York slid 0.5 percent. Oil fell as much as 0.4 percent today, and copper futures declined as much as 1.9 percent.

The MSCI Asia Pacific Index dropped 13 percent this year through yesterday, compared with a 4.5 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 12.1 times estimated earnings on average, compared with 12 times for the S&P 500 and 10.1 times for the Stoxx 600.

The German spokesman’s comments are “another indication of the political obstacles to forging a workable solution for the eurozone,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “Investors have been reminded of the need for caution until details of any proposal are formally released and agreed on.” (Bloomberg)


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