Last Updated- Nov 20, 2009 6:30 - - 0 Comments


Asian stocks drop, won drops

StocksAsian stocks fell for a fourth day, the longest losing streak since July, and the South Korean won led regional currency declines after companies from Dell Inc. to Sony Corp. posted results that disappointed investors.

The MSCI Asia Pacific Index retreated 0.5 percent to 116.89 as of 2:28 p.m. in Tokyo, led by Sony and Advantest Corp., the world’s biggest maker of memory-chip testers. The won lost 0.3 percent to 1,160.2 after reaching a two-week low. Australia’s S&P/ASX 200 Index slid 1.3 percent after the initial share sale of Rio Tinto Group’s coal unit raised less than expected.

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said yesterday the risk of new asset bubbles in global economies and markets is rising, echoing similar comments by Hong Kong Exchanges & Clearing Ltd.’s Chairman Ronald Arculli two days ago. Zhou Xiaochuan, governor of China’s central bank, said today the country must remain vigilant against excessive production capacity.

“Weak earnings such as Dell’s show that it’s still too early to say everything is OK,” said Nicholas Yeo, who helps manage $40 billion in Asian equities at Aberdeen Asset Management Co. “The market has gone up a lot in a short span of time, so I would expect to see a correction in the near-term, since it’s not extremely cheap.”

The MSCI Asia Pacific Index has climbed 63 percent since March amid signs the global economy is recovering from its worst slowdown since World War II. The measure is valued at 22 times estimated earnings for this year, more than twice the level 12 months ago.

Nikkei

The Nikkei 225 Stock Average fell 0.8 percent as Sony sank 2.8 percent to 2,400 yen. The Tokyo-based maker of Bravia televisions is aiming for a 10 percent return on equity by March 2013, pushed back from its previous target of March 2011, Sony said yesterday. It’s also forecasting a net loss of 95 billion yen ($1.07 billion) this fiscal year after losing 98.9 billion yen the previous year. Advantest fell 2.9 percent.

Dell, the world’s third-largest maker of personal computers, yesterday reported earnings that missed analysts’ estimates after it lost market share and higher PC component costs cut into profit. Dell shares dropped 6 percent to $14.91 in extended trading.

Computer-related stocks led declines. Lenovo Group Ltd., China’s biggest maker of personal computers, lost 5.3 percent, while Taiwan’s Quanta Computer Inc., the world’s second-largest notebook computer maker, slipped 2.6 percent.

Disappointing Data

“We’ve had some slightly disappointing data pointing to a slowdown in the economic recovery, and the Dell numbers were also not encouraging,” said Diane Lin, a Sydney-based fund manager at Pengana Capital Ltd., which oversees about $1.1 billion. “I don’t think there’ll be a dramatic sharp correction but you’ll definitely see some profit taking.”

Australia’s S&P/ASX 200 fell 1.3 percent, set for its biggest drop in almost three weeks. Rio Tinto slid 1.6 percent as its Cloud Peak Energy Inc. unit raised $459 million in an initial public offering, below its forecast.

The won led declines in Asian currencies on speculation policy makers in the region will step up curbs on capital inflows to prevent asset bubbles. Korean government agencies plan to hold talks on how to curb investments financed with cheap U.S. dollar loans, so-called carry trades, Kim Jong Chang, governor of the Financial Supervisory Service, said late yesterday.

The Taiwan dollar lost 0.2 percent to N$32.35 per dollar and the Philippine peso weakened 0.1 percent to 47.11.

Interest Rate Policy

Treasury three-month bill rates were near zero, after turning negative for the first time in almost a year, while Japanese government bonds headed for a second weekly gain on prospects the U.S. and Japanese central banks will keep borrowing costs low for an extended period.

Rates at record lows in the U.S. are raising “systemic risk” of new asset bubbles, Gross said. The three-month Treasury bill rate was 0.0051 percent, according to data compiled by Bloomberg.

“The Federal Reserve’s low-interest-rate policy will continue for a long time, maybe two years,” said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which oversees the equivalent of $21.4 billion and is part of Japan’s second-largest bank.

Japan’s Rate Meeting

The Bank of Japan concludes its rate meeting today, at which economists forecast policy makers will keep borrowing costs near zero. The yield on 10-year Japanese government bonds touched 1.285 percent today, the lowest level since Oct. 9, according to prices at Japan Bond Trading Co., the nation’s largest interdealer debt broker. It has fallen five basis points this week.

China’s Shanghai Composite Index fell 0.3 percent, the most in three weeks. The nation must remain vigilant against excessive production capacity after its $586 billion economic stimulus plan helped spur urban investment, central bank Governor Zhou said at the Businessweek CEO Forum in Beijing today. Countries in the Group of 20 have provided about $12 trillion to revive the global economy, according to International Monetary Fund data.

“The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. “It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.”

Playing Catch-Up

Emerging-market equity funds are set to exceed the record inflows for 2009 as investors added more securities in developing nations to “seek protection” from a weaker dollar, EPFR Global said. Inflows for emerging-market equity funds tracked weekly reached $56.8 billion, compared with the record $50 billion two years ago, said EPFR, which tracks funds with $10 trillion worldwide.

Emerging-market bond funds posted their second- highest weekly inflows since EPFR started tracking them, it added.

“Some underweight funds are trying to play catch-up while those that have done well will be locking in the gains,” said Michael Auyeung, who manages about $500 million as chief investment officer at Pacific Mutual Fund Bhd. in Petaling Jaya, outside Kuala Lumpur. “Equity markets may vacillate with an upside bias until the end of the year.”

Copper for three months delivery gained 0.9 percent to $6,855 a metric ton on the London Metal Exchange. Chile’s Mining Federation threatened to join protests against BHP Billiton Ltd., potentially escalating tension at the company’s Spence copper mine, which has been on strike for five weeks. Zinc, used to galvanize steel, was up 2 percent at $2,259.50 a ton.

Oil and Stocks

Crude oil traded little changed in New York at $77.85 a barrel after losing 2.7 percent yesterday on concern that demand is weak as refining rates in the U.S. dropped and equity markets declined. Oil, which has risen 74 percent this year, fell as investors closed off positions before the end of the year.

“Both oil and equities have done well and towards the end of the year, it may be a time for investors to lock in profit,” said Victor Shum. “A retraction in oil prices and equities ought to take place. Both have come a long way this year despite weak fundamentals in oil and sustainability in economic recovery.”

Source: Bloomberg

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