BLBG: Asian Stocks Fall to Two-Week Low After China's Rate Increase
Asian stocks dropped for a fourth day, the longest losing streak for the region’s benchmark index in two months, after China unexpectedly raised interest rates to curb inflation in the world’s fastest-growing major economy.
Hong Kong-listed Guangzhou R&F Properties Co., the biggest real-estate company in the southern Chinese city of Guangzhou, slumped 5.4 percent. Miner Rio Tinto Group, which counts China as its biggest market, decreased 1.8 percent. Inpex Corp., Japan’s biggest energy explorer, dropped 2.6 percent. Canon Inc., a Japanese camera maker that gets about 80 percent of its revenue overseas, fell 2.2 percent after the yen climbed to a one-month high against the euro.
“The perceived problem with China raising rates is it limits economic growth from one of the higher growth economies,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “Markets in Asia have adopted a very cautious approach to today’s trading in light of this news.”
The MSCI Asia Pacific Index declined 0.3 percent to 129.38 as of 2:31 p.m. in Tokyo. It has fallen 2 percent in the past four days, the longest series of declines since Aug. 9-12. China yesterday raised borrowing costs for the first time since 2007 as policy makers try to curb lending and prevent asset-price bubbles in a country that surpassed Japan in the second quarter as the world’s second-largest economy.
Japan’s Nikkei 225 Stock Average dropped 1.6 percent, while Hong Kong’s Hang Seng Index lost 0.6 percent. Australia’s S&P/ASX 200 Index slid 0.7 percent.
China’s Shanghai Composite Index rose 1 percent, erasing losses of as much as 2 percent earlier, as some investors bought insurers on speculation they will benefit from higher interest rates.
Borrowing Costs
Futures on the Standard & Poor’s 500 Index rose 0.3 percent. The index lost 1.6 percent yesterday, the biggest drop since Aug. 19, amid concern banks will be forced to buy back soured mortgages and after Apple Inc. forecast profit that missed analyst estimates.
Shares of Chinese real-estate companies led the drop among Asian equities on concern higher borrowing costs will deter demand for housing. China’s central bank yesterday raised one- year lending and deposit rates by 25 basis points.
Guangzhou R&F Properties slumped 5.4 percent to HK$11.50. Shimao Property Holdings Ltd., which receives all its sales from China, dropped 4.8 percent to HK$13.04. Agile Property Holdings Ltd., which builds villas and apartments in China’s southern Guangdong province, declined 5.5 percent to HK$10.
Investment Returns
Shares of Chinese banks also dropped in Hong Kong. Industrial & Commercial Bank of China Ltd., the nation’s No. 1 lender, fell 0.3 percent to HK$6.31. Bank of China Ltd., the country’s No. 3 lender, slid 0.4 percent to HK$4.58.
China Life Insurance Co., the nation’s biggest insurer, jumped 5.4 percent to 28.10 yuan, while Ping An Insurance (Group) Co. advanced 7 percent to 67 yuan. Life insurers will benefit from improved investment returns and gain flexibility to price products, Ivan Leung, an analyst at Mirae Asset Securities Co., wrote in a report dated today.
Investors should buy Chinese stocks on dips as “earnings are solid, valuations are reasonable and the rate hike could actually remove the risk of an overhang,” Goldman Sachs Group Inc. analysts including Helen Zhu and Timothy Moe wrote in a report.
Gauges of energy and raw-material producers posted the biggest and third-biggest declines among the 10 industry groups in the MSCI Asia Pacific Index, on concern the rate increase in China will crimp demand for commodities.
Commodity Stocks Fall
BHP Billion Ltd., the largest mining company in the world, declined 0.9 percent to A$40.78. Rio Tinto decreased 1.8 percent to A$81.13. Mitsubishi Corp., Japan’s biggest commodities trader, fell 2.7 percent to 1,994 yen. Smaller rival Mitsui & Co. dipped 2.8 percent to 1,292 yen.
Inpex Corp., Japan’s biggest energy explorer, decreased 2.6 percent to 435,500 yen. Cnooc Ltd., China’s biggest offshore oil and gas explorer, lost 1.8 percent to HK$16.04. Santos Ltd., Australia’s third-largest oil and gas producer, fell 2.2 percent to A$12.46.
Crude oil for November delivery sank 4.3 percent to settle at $79.49 a barrel yesterday in New York, the steepest drop since Feb. 4. The London Metal Exchange Index of six metals including aluminum and copper lost 2.1 percent yesterday, the largest decline since Oct. 7.
The measure completed its seventh weekly advance last week, the longest winning streak since 2006, on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound.
Policy Action
The MSCI Asia Pacific Index has risen 7.4 percent this year as government and industry reports from the U.S. and China fueled confidence in the global economic recovery. Stocks in the gauge trade at 14.3 times estimated profit on average, compared with 13.9 times for the S&P 500 and 12.2 times for the Stoxx Europe 600 Index.
Bank of England Governor Mervyn King yesterday called for “collective” policy action to rebalance the world economy. Failure to find common ground risks the imposition of trade barriers and weaker global growth, he said before a meeting later this week of Group of 20 finance ministers and central bankers in South Korea.
Japanese exporters dropped as the yen climbed to a one- month high against the euro, threatening to reduce the value of European sales when repatriated. The yen rose to 111.56 per euro, the highest since Sept. 21, from 112 yesterday in New York.
Canon slipped 2.2 percent to 3,750 yen. Panasonic Corp., the world’s biggest maker of plasma televisions, decreased 1.8 percent to 1,174 yen. Sony Corp., the maker of Bravia televisions and PlayStation game consoles, fell 1 percent to 2,671 yen. Toyota Motor Corp., the world’s largest car maker, dropped 2.1 percent to 2,865 yen.
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.
