Asian stocks fall on Japan deflation warnings

Asian stocks fall on Japan deflation warnings

May 20, 2010 - 2:54PM
Asian stocks fell, dragging the MSCI Asia Pacific Index to its lowest in more than six months, after Japan's finance minister warned about continuing deflation and concern grew about Europe's debt crisis.

Canon Inc., a camera maker that counts Europe as its biggest market by revenue, lost 2.9 per cent in Tokyo. Surfwear maker Billabong International, which gets 23 per cent of its sales in Europe, slumped 5.1 per cent in Sydney. Toyota sank 2 per cent as the carmaker offered repairs for an engine fault in its Passo subcompact models.

The MSCI Asia Pacific Index fell 1 per cent in Tokyo, set to close at its lowest level since Sept. 4. The gauge has tumbled 12 per cent from its high this year on April 15 amid concern debt problems in countries from Greece to Spain will spill over into other European nations. Germany this week introduced a temporary ban on naked short selling to calm the region's financial markets.

''With the volatility at present it's difficult for investors to swim against the tide,'' said Tim Schroeders, who helps manage about $US1.1 billion at Pengana Capital in Melbourne. ''Doubts over Europe's ability to keep its own house in order remain, along with concerns about the robustness of global growth. Many investors are sitting on the sidelines until the way forward becomes clearer.''

Japan's Nikkei 225 Stock Average sank 1.2 per cent, as Finance Minister Naoto Kan warned that the economy continues to be in a deflationary state minutes after a government economic growth report missed estimates. Australia's S&P/ASX 200 Index lost 0.5 per cent. South Korea's Kospi Index fell 0.5 per cent.

China, Hong Kong

China's Shanghai Composite Index sank 0.4 per cent, after earlier rising 0.8 per cent. Hong Kong's Hang Seng Index was little changed. Singapore's Straits Times Index dropped 0.4 per cent even after a government report showed the city-state's economy grew at a faster pace than initially estimated.

Futures on the Standard & Poor's 500 Index gained 0.3 per cent. The index slid 0.5 per cent yesterday as Germany's trading restrictions and a jump in mortgage foreclosures to a record triggered a flight from equities.

German regulators banned investors from naked short sales of 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds, starting yesterday.

Short sellers borrow assets and sell them, betting the price will fall and they'll be able to buy them later, return them to the lender and pocket the difference. In naked short- selling, traders never borrow the assets so betting is unlimited.

Free repairs

Canon declined 2.9 per cent to 3815 yen in Tokyo, while Nintendo, a Japanese maker of game consoles that gets 34 per cent of its revenue in Europe, dropped 3.3 per cent to 25,970 yen in Osaka. Billabong slumped 5.1 per cent to $10.25.

Toyota, the world's largest automaker, fell 2.1 per cent to 3435 yen, the biggest drag on the MSCI Asia Pacific Index. The company will offer free repairs from tomorrow for an engine fault affecting 22,300 Passo subcompact models in Japan, according to Toyota spokeswoman Mieko Iwasaki.

Japan's Nikkei 225 Stock Average had the steepest decline among key stock gauges in the Asia Pacific region. A government report showed the country's economy expanded slower than economists expected in the first quarter, with more than half of growth coming from trade, and consumer spending contributing less than one-fifth.

Chinese interest rates

Finance Minister Kan said that he expects the Bank of Japan to support the economy with flexible policy and that officials must be cautious about calling the recovery self-sustaining. The BOJ starts a two-day policy meeting today.

Property stocks in Hong Kong rose after the state-run China Securities Journal said in a front-page editorial today that the nation can wait until the second half of 2010 or next year to raise benchmark rates as economic growth slows.

Chinese measures to rein in the country's real-estate prices contributed to the MSCI Asia Pacific Index's slump since April. Companies in the measure trade at an average 14.4 times estimated earnings, near the lowest level since December 2008.

'Face reality'

Hang Lung Properties, which received 40 per cent of its fiscal 2009 revenue from China, gained 1.3 per cent to $HK27.90 in Hong Kong. China Overseas Land & Investment, controlled by the nation's construction ministry, rose 0.7 per cent to $HK14.52. Bank of China, the nation's third- largest lender, climbed 0.5 per cent to $HK3.96.

''Most economists will have to face reality and postpone their expected timing of the first rate hike, especially after the breakout of the European debt crisis,'' Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch, said in an e-mailed report.

Energy companies in Asia advanced as oil futures in New York climbed 1 per cent to $US70.60 a barrel, extending yesterday's 0.7 per cent increase. Cnooc, China's largest offshore oil producer, gained 1.8 per cent to $HK12.36. Cosmo Oil jumped 4.2 per cent to 251 yen in Tokyo.

Oil & Natural Gas, India's largest state-owned oil explorer, surged 9 per cent to 1116.9 rupees after the country's government agreed to more than double the price of gas produced from fields awarded to state companies.

Bloomberg

Source: theage.com.au

http://www.smh.com.au/business/markets/asian-stocks-fall-on-japan-deflation-warnings-20100520-vhio.html