Tokyo: Asian stocks fell, led by material producers and energy companies, on concern a three-month rally had made shares expensive relative to earnings prospects.
Feng Hsin Iron and Steel Co. Ltd, which last week rose to a more than eight-month high, lost 6.5% in Taipei. CNOOC Ltd, China’s largest offshore oil producer, sank 2.7% as oil prices retreated for a second day. Daido Steel Co. Ltd slumped 3.5% in Tokyo on a Goldman Sachs downgrade.
“Valuations are not cheap,” said Pauline Dan, chief investment officer at Samsung Investment Trust Management Co. Ltd in Hong Kong, which oversees $67.6 billion (Rs3.2 trillion) in assets. “Investors who have been pricing in a quick recovery are wondering whether the ‘green shoots’ we’ve seen will turn into big trees.”
The MSCI Asia Pacific Index fell 0.9% in Tokyo, with five stocks declining for every four that rose. The measure has climbed 45% from a five-year low on 9 March on optimism global growth is recovering. The rally drove valuations to an eight-month high.
Japan’s Nikkei 225 Stock Average climbed 1% as a weaker yen boosted the earnings outlook for Canon Inc., which gets 28% of its revenue in the Americas. Komatsu Ltd, the world’s No. 2 maker of earth overs, surged 6% after two brokerages recommended buying the stock.
South Korea’s Samsung Engineering Co. Ltd climbed 4.5% after Mirae Asset Securities Co. Ltd raised its share price target. Taiwan’s Taiex Index sank 2.1%. Australia’s stock market is closed for a holiday.
Futures on the Standard and Poor’s 500 Index lost 0.9%. The gauge fell 0.3% on 5 June on concern that higher borrowing costs will threaten the economic recovery overshadowed the better-than-estimated employment report.
The stock rally since March has lifted the average valuation of companies on MSCI’s Asian index to 1.5 times the book value of assets, the highest level since 29 September.
Taiwan’s Taiex Index, which rallied 15% last month, had the biggest drop in Asia on Monday. Feng Hsin Iron and Steel Co. Ltd sank 6.5% to New Taiwanese (NT)$49.20 (Rs72.32). Cathay Financial Holding Co. Ltd, Taiwan’s largest listed financial services company, slid 5% to NT$48.95, paring its gain in the past month to 7.8%.
“Taiwan shares are overvalued after rising so much in May, so there are foreign investors selling,” said Kevin Yang, who manages $150 million as chief investment officer of Paradigm Asset Management Co. Llc. in Taipei. CNOOC lost 2.7% to Hong Kong (HK)$10.88 (Rs67.24). Oil futures in New York dropped 1.7% in after-hours trading, adding to a 0.5% decline on 5 June. PetroChina Co. Ltd, China’s largest oil producer, sank 2.1% to HK$9.19. The drop followed three weeks of gains that took its relative strength index, a gauge of how rapidly prices have risen or fallen, above the 70 threshold some traders use as a sell signal.