BLBG: Asian Stocks, U.S. Futures Slump on Bank Concern; Yen Rises
Asian stocks and U.S. index futures fell as concern that U.S. banks are short of capital prompted investors to avoid higher-yielding assets. The yen, dollar and Treasury futures gained.
Shinhan Financial Group Co., South Korea’s second- biggest financial company, slumped 4.3 percent after Citigroup Inc. downgraded the stock and as people familiar with the matter said Bank of America Corp. needs about $34 billion in new funds. BHP Billiton Ltd., the world’s No. 1 mining company, lost 2.2 percent in Sydney while Cnooc Ltd., China’s largest offshore oil producer, dropped 3.3 percent in Hong Kong after copper and oil prices fell yesterday.
The MSCI Asia Pacific excluding Japan Index lost 0.5 percent to 295.96 as of 12:50 p.m. in Hong Kong. The gauge surged 43 percent in the past two months on speculation global growth is recovering.
“Markets have been very strong in the last few weeks on a view that the worst has passed,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which holds about $90 billion in assets. “News that some of the larger banks still need to raise a fair bit of capital brings that into question.”
Australia’s S&P/ASX 200 Index lost 0.8 percent, while South Korea’s Kospi fell 0.4 percent. China’s Shanghai Composite Index gained 1 percent. Japan’s market is closed for a holiday today.
More Capital?
Westpac Banking Corp., Australia’s biggest lender by market value, climbed 2.2 percent even as it reported a drop in first-half profit. HSBC Holdings Plc, Europe’s largest bank, gained 2.5 percent in Hong Kong after it was upgraded by JPMorgan Chase & Co. Harvey Norman Holdings Ltd., Australia’s largest electrical retailer, lost 6 percent after JPMorgan cut its recommendation on the stock.
U.S. Standard & Poor’s 500 Index futures lost 1.2 percent amid bank capital-raising concerns. Citigroup Inc.’s shortfall is more limited than Bank of America’s because the company already plans to convert government preferred shares to common stock, the people said. The S&P 500 lost 0.4 percent yesterday.
The banks may outline their strategies to add capital, or in other cases buy out government stakes, after the Federal Reserve publishes the stress tests results on May 7. Losses from the credit crisis since the start of 2007 have swelled to $1.3 trillion, according to data compiled by Bloomberg.
“It’s hard to see a sustained recovery in the global economy until the financial system has repaired itself,” Colonial’s Halmarick said. “These stress tests results are telling us that we’re not quite out of the woods yet.”
Risk Aversion
Asian economies face a “long recovery” from the global slowdown and “forceful” fiscal measures are still needed to lift the region out of the recession quickly, the International Monetary Fund said in a report today.
The yen and the dollar rose against the euro as demand increased for the relative safety of the two currencies. The yen gained 0.8 percent to 98.06 per dollar. The yield on 10-year Treasury futures contracts fell three basis points to 3.47 percent.
“The reported amount of capital needed by Bank of America is very large, causing risk aversion,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank.
Stake Sale
Finance companies accounted for 28 percent of the MSCI gauge’s decline today. Shinhan slumped 4.3 percent to 32,550 won after Citigroup cut the stock to “hold” from “buy,” citing a decline in operating profit.
China Construction Bank Corp. fell 1.5 percent to HK$4.70 on concern Bank of America will reduce its stake when a lockup on the holding ends tomorrow. The U.S. lender can sell as many as 13.5 billion shares, or 6 percent of the Chinese lender’s outstanding stock traded in Hong Kong, according to an earlier agreement.
BHP fell 2.2 percent to A$33.73. Rio Tinto Group, the world’s third-largest mining company, slid 2.8 percent to A$68.97. Cnooc slumped 3.3 percent to HK$9.48. Copper futures in New York dropped 2.9 percent to $2.0825 a pound yesterday. Crude oil lost 1.2 percent.
‘No Real Surprises’
Westpac climbed 2.2 percent to A$19.93. The bank said cash earnings dropped to A$2.29 billion ($1.7 billion) in the six months ended March 31, from A$2.44 billion a year ago, using pro-forma numbers adjusted to reflect last year’s takeover of St. George Bank Ltd. Bad debts for the half totaled A$1.61 billion.
“This result will be taken well for Westpac for sure, as there were no real surprises,” said Prasad Patkar, who helps manage the equivalent of about $800 million at Platypus Asset Management in Sydney. “It is also likely to be seen as good for the banking sector as a whole.”
HSBC climbed 2.5 percent to HK$59.40 after JPMorgan raised its recommendation to “neutral” from “underweight.” Harvey Norman lost 6 percent to A$3.13 after it was cut to “underweight” from “neutral” at JPMorgan.
