Sydney: Asian stocks suffered their biggest loss in 10 weeks on Monday after US regulators filed fraud charges against Goldman Sachs and China clamped down harder on property speculation, giving investors an excuse to take profits after markets had rallied to multi-month highs.
The pull-back in equities was matched by a decline in commodity prices, while benefiting assets deemed to be less risky. Government bond prices, the yen and the US dollar all rose.
Yet some investors and analysts thought Monday’s shift was only temporary, given expectations that stocks and commodities were due for a pull back anyway after recent rallies.
“I don’t see this as a beginning of a bear market,” said Bratin Sanyal, head of Asian equities with ING Asset Management in Hong Kong. “The market has gone up so strongly, a bit of a correction was overdue.”
But Sanyal, who manages $2.5 billion worth of assets in Asia outside Japan, said that did not mean Asian equities would necessarily grind higher from here.
Asian stocks are already priced for firms to deliver strong profits as the world economy heals. So they may drift sideways as investors wait for those earnings to materialize. For instance, Japan’s earnings season moves into high gear next week.
The fraud charges against Goldman Sachs Group Inc weighed on regional bank stocks even though most Asian banks were nowhere near as active as their US peers in the subprime mortgage business.
Goldman Sachs was charged with fraud by the US Securities and Exchange Commission (SEC) over its marketing of a subprime mortgage product, igniting a battle between Wall Street’s most powerful bank and the nation’s top securities regulator.
The MSCI index of Asian stocks outside Japan shed about 2.4%, its sharpest daily loss since 5 February, and retreating further from a 22-month high hit on Thursday.
Shanghai composite index slumped 4.8%, its biggest percentage loss since last August, pressured by a tumble in the property sector.
“The market is reacting to news of the clampdown in property,” said Xu Yinhui, analyst at Guotai Junan Securities.
Real estate companies, prominent among the market’s large caps, fuelled a more than a 5% drop in the CSI300 index, which covers the 300 largest companies by daily turnover and market capitalization on the Shanghai and Shenzhen stock exchanges.
Banking stocks were also hit by news of fraud charges against Goldman, with ICBC the most actively traded stock on the Shanghai Stock Exchange, down 5%.
All 14 banks listed on the Shanghai and Shenzhen stock exchanges fell on investors concern that the government’s clampdown on property would increase bad loans, as banks have lent a large amount of money to property companies and homeowners.
“Both the property clampdown and Goldman news are short-term factors, while a full recovery of China’s economy is still on the cards, preventing the market from falling too much,” said Zheng Waigang, head of investment at Shanghai Securities.
Hong Kong shares closed down 2.1% at the lowest in nearly three weeks.
Japan’s Nikkei average slid 1.7% and hit a three-week low, as investors booked profits on worries that fraud charges against Goldman may increase the likelihood of tighter US financial regulation.
“There had been signs of overheating in the market, and on top of that came concerns that the issue of financial regulation may gain momentum in the United States,” said Mitsushige Akino, chief fund manager for Ichiyoshi Investment Management Co Ltd.
Airline and tourism stocks also fell as flights to Europe remained grounded due to a volcanic ash cloud from Iceland.
Australian shares fell 1.4% to their lowest level in more than two weeks, as investors dumped shares across markets on Goldman news and disappointing US earnings.
South Korean shares dipped 1.7%, with blue-chip technology and financial issues such as Samsung Electronics and KB Financial falling.
Taiwan stocks slumped 3.2%, their biggest one-day percentage fall in more than two months, amid caution over quarterly earnings.
Major technology exporters including LCD maker AU Optronics Corp and other financial shares led the decline, and analysts said more downside is likely this week if the Goldman woes continued.
“It is like a snowball and we really don’t know what will happen next and how big the impact will be,” said Andrew Deng, analyst at Taiwan International Securities.
Shares in India and Singapore fell more than a percent.
The low-yielding yen rose broadly on risk-aversion, while the euro weakened on concerns about Greece’s debts.
Gold fell to its lowest in nearly two weeks as Goldman news hurt commodities but lifted the dollar. Oil hit a three-week low below $82 a barrel as European flights remained disrupted, curbing jet fuel use.