Hong Kong/Sydney: Asian stocks fell the most in five weeks on Friday, 25 May, after US home sales unexpectedly surged, damping speculation that the Federal Reserve will cut interest rates in the region’s biggest export market.
Toyota Motor Corp., the world’s No. 2 auto maker, declined the most in two weeks, while BHP Billiton Ltd, the biggest mining company, posted its second weekly drop. “Investors had thought a low interest rate environment would continue in the US, helping drive shares higher,” said Hiroshi Chano, who helps manage $7.3 billion (Rs29,930 crore) at Yasuda Asset Management Co. in Tokyo. “The housing market is staging a comeback, so expectations that rates would come down have dissipated.”
The Morgan Stanley Capital International (MSCI) Asia-Pacific Index fell 1% to 147.83 at 7:52pm in Tokyo, with all of its 10 industry groups retreating. The drop was the most since 19 April, when concerns that borrowing costs in China would increase dragged stocks lower.
The MSCI measure gained 0.3% this week. China’s CSI 300 Index rose to a record. Shenzhen Development Bank Co. led gains after increasing an offer to investors to make all its stock tradable. Lenovo Group Ltd surged in Hong Kong after reporting earnings that prompted upgrades from JPMorgan Chase & Co. and Credit Suisse Group.
Benchmarks in China, India, Pakistan and Sri Lanka were the only ones in the region to advance. The Nikkei 225 Stock Average fell 1.2%, the most in a month. Hong Kong’s Hang Seng Index slid 1.3%. Japan’s Toyota, which gets about 60% of its operating profit from the US, fell 1.5% to 7,280 yen, the biggest drop since 10 May. Melbourne-based BHP Billiton slipped 1.1% to A$30.66 (Rs1,012), taking its drop this week to 0.2%. Almost 81% of its 2006 sales came from outside Australia.
Damp market: A Japanese businessman walks past a stock indicator in Tokyo.The Nikkei 225 Stock Average fell 1.2%, the most in a month.
Bond markets in the US on Thursday indicated that high interest rates may be sustained. Yields on 10-year Treasuries traded near the highest in almost four months after government reports showed new home sales climbed the most in April since 1993 and durable-goods orders gained for a third month.
The reports also contributed to the Dow Jones Industrial Average falling for a fourth day, the longest losing streak since February. The measure lost 0.6% on Thursday. Some investors voiced concerns that rates may be on the way up in the US. The Fed raised borrowing costs 17 times in the year through June 2006 to curb inflation. The central bank hasn’t increased rates since.
“Investors are getting the jitters about the US,” said Shane Oliver, who helps oversee $83 billion at AMP Capital Investors in Sydney. “Their view that interest rates there were at some kind of turning point may not be as solid as it was.”
Canon Inc., the world’s second-largest maker of digital cameras, slid 2% to 6,980 yen (Rs2,303). The US is the company’s second-largest market. Samsung Electronics Co., the No. 2 semiconductor maker and South Korea’s largest exporter, lost 1.8% to 552,000 won (Rs22,080).
Taiwan Semiconductor Manufacturing Co., the biggest maker of customized chips, fell 1.6% to NT$67.40 (Rs80.88) in Taiwan. Hong Kong developers declined on concern higher interest rates may dent property demand. Cheung Kong (Holdings) Ltd, the city’s No. 1 developer by value, lost 1.5% to HK$102.10 (Rs531). Sun Hung Kai Properties Ltd, the second biggest, slid 0.8% to HK$91.60. Hong Kong “might suffer from a large interest-rate shock” if the gap between Hong Kong dollar and US dollar interest rates “closes abruptly,” Joseph Yam, head of the city’s monetary authority, wrote on its website on Thursday.
Mining companies fell as a measure of six metals traded on the London Metal Exchange, including copper and zinc, slumped 2.4% on Thursday to the lowest since April 2. Copper slid 2.8%, zinc fell 2.2% and nickel dropped 2.6%.
Rio Tinto Ltd, the world’s second-biggest miner by value, slipped 1.4% to A$92.72. Zinifex Ltd, the third-biggest zinc producer, declined 3% to A$16.77. Jiangxi Copper Co., China’s largest publicly-traded producer of the metal, lost 0.8% to HK$12.30 in Hong Kong. Shenzhen Development Bank, controlled by buyout firm TPG Inc., jumped by the 5% daily limit for firms that haven’t completed non-tradable share conversion to 29.24 yuan (Rs155). The shares resumed trading on Friday after being suspended for the past two weeks. “Shenzhen Bank’s offer package has satisfied the market,” said Lu Yizhen, who helps manage $640 million at Citic-Prudential Fund Management Co., in Shanghai. “We still like banking stocks given their valuations and earnings growth prospects.”
Shenzhen Development Bank plans to grant investors 1.5 free call warrants in addition to one share for every 10 yuan-denominated shares they hold to compensate for the dilution of their stakes, the bank said in a statement on 23 May.
Lenovo, the world’s third-biggest personal-computer maker, surged 14% to HK$3.66, the biggest climb since September 2000. Fourth-quarter net income of $60.1 million was higher than the $27.5 million median estimate of four analysts surveyed. Profit rebounded from a $116 million loss a year earlier that included a $70 million restructuring charge. The stock was raised to “overweight” from “neutral” at JPMorgan and to “neutral” from “underperform” at Credit Suisse, according to separate reports by both.
Stuart Kelly and Zhang Shidong contributed to this story.