BLBG: Asian Stocks, U.S. Futures Fall as Recession Concern Deepens
Asian stocks and U.S. futures slumped after the U.K. widened a rescue plan for Royal Bank of Scotland Group Plc, sparking concerns that more companies will need bailouts as the global recession deepens.
HSBC Holdings Plc, Europe’s largest bank, lost 6.7 percent in Hong Kong amid speculation the U.K. will take full control of RBS after the lender forecast the biggest loss in British history. BHP Billiton Ltd., the world’s largest mining company, dropped 5.1 percent in Sydney after oil and aluminum prices fell. Elpida Memory Inc. tumbled 5 percent in Tokyo after postponing its earnings announcement.
“Market jitters remain as banks’ asset quality worsens in slowing economies,” said Kim Young Il, head of equities at Korea Investment Trust Management Co. in Seoul, which manages the equivalent of $6.2 billion. “The attention is now on whether this signals a second round in the financial crisis.”
The MSCI Asia Pacific Index dropped 2.4 percent to 83.01 as of 1:45 p.m. in Tokyo, with nine of its constituents falling for each that advanced. Japan’s Nikkei 225 Stock Average lost 2.7 percent to 8,037.09. All markets open for trading declined.
Europe’s Dow Jones Stoxx 600 Index slid 1.7 percent yesterday, led by RBS after it forecast a loss of as much as 28 billion pounds ($40 billion) this year.
Futures on the Standard & Poor’s 500 Index fell 1.6 percent today, pointing to declines when U.S. markets reopen following yesterday’s holiday for Martin Luther King Day. Barack Obama’s inauguration later today as the 44th president of the U.S. will likely be a focus for U.S. traders.
‘Economic Pearl Harbor’
His administration inherits an economy struggling to cope with the worst financial crisis since the Great Depression. The crisis, sparked by a U.S. housing slump, dragged the world’s largest economies into recession and caused more than $1 trillion of losses at financial institutions globally.
The U.S. economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to economists surveyed by Bloomberg last week. European Central Bank President Jean-Claude Trichet said yesterday the outlook for the euro-region economy is “substantially” worse than the bank predicted a month ago.
MSCI’s Asian gauge slumped 43 percent in 2008, its worst year on record, as the global recession curbed demand for the region’s raw materials, automobiles and computers. The average valuation of the measure’s constituents has fallen about two- fifths in the past year to 10 times reported profit.
“We are in the middle of the economic Pearl Harbor right now,” billionaire investor and Berkshire Hathaway Inc. Chairman Warren Buffett told NBC in an interview aired on Jan. 18. “Now we have to get mobilized to win the war.”
Oil, Aluminum Prices
BHP slumped 5.1 percent to A$28.83. Alumina Ltd., a partner in the world’s biggest producer of the material used to make aluminum, lost 4.2 percent to A$1.255. Alumina may report a loss this year and cut its dividend because of lower forecast prices of the metal, according to ABN Amro Holding NV.
Crude oil for February delivery in New York dropped 6.3 percent to $34.20 a barrel in after-hours trading. Aluminum in London lost as much as 3.9 percent yesterday to the lowest level since September 2003.
HSBC slumped 6.7 percent to HK$58.10 even after saying it couldn’t “envisage circumstances” where it would need government funding. Mizuho Financial Group Inc., Japan’s second-largest bank by revenue, fell 4.9 percent to 231 yen. PT Bank Danamon Indonesia tumbled 13 percent to 2,550 rupiah, the biggest decline on MSCI’s Asian gauge.
RBS shares plunged 67 percent yesterday as the U.K. agreed to swap preference shares it holds in the lender for ordinary stock. In exchange for government guarantees on losses from toxic debt, RBS will have to sign a binding agreement with the Treasury on how much it will lend and on what terms.
‘Fragile Sentiment’
The cost of protecting investors in corporate bonds from default rose on concern the banking crisis is worsening. The Markit iTraxx Australia index was quoted 5 basis points higher at 310, Australia & New Zealand Banking Group Ltd. prices show. The Markit iTraxx Japan index added 2.5 basis points to 297.5, according to Barclays Capital prices.
“The RBS forecast has hit already fragile sentiment,” said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $85 billion. “It brings back all the doubts about more writedowns. If you can’t get stabilization in the credit markets, it’s hard to get any traction in economic activity.”
Elpida, Japan’s biggest memory-chip maker, slumped 5 percent to 533 yen, after pushing back its profit announcement by more than a week to Feb. 6, as it finalizes earnings from affiliate Recipe Electronics Corp.
Declining Profits
Jet Corp. fell 3.8 percent to 610 yen after the bearing maker forecast a full-year loss on falling export revenue. BOE Technology Group Co., China’s biggest maker of liquid crystal displays used in televisions and computer monitors, fell 4.8 percent to 2.77 yuan after saying it lost as much as 1 billion yuan ($146 million) last year.
Showa Denko KK climbed 4.7 percent to 133 yen, the third- largest gain on the MSCI Asia Pacific Index today. The Nikkei newspaper reported the company was in talks with Furukawa Electric Co. to merge their aluminum businesses by 2010 to counter waning demand.
