Asian stocks fall on Obama proposals

Asian stock markets tumbled on Friday as commodity prices fell and the dollar weakened after U.S. President Barack Obama proposed tough new restrictions on banks, curbing investors’ appetite for riskier assets.

Japanese stocks fell almost 3 percent as the yen surged against the dollar and the euro and as falling metal and oil prices weighed on shares of resource-related firms.

Other Asian markets were also badly hit by the U.S. proposal, which would squeeze banks’ profits. South Korea’s KOSPI was down 1.87 percent while Hong Kong was down over 2.5 percent. Banks have a heavy weighting in many global benchmark share indexes.

The MSCI Asia-Pacific index excluding Japan was down 2.4 percent and looked set for a loss of 5.2 percent on the week.

“Of course, any sort of market regulation isn’t good for the market, and if you start limiting hedge funds that hurts overall market flexibility,” said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo.

“I don’t think the proposal is very realistic and it’s hard to know if it’ll ever come to pass, but investors want to wait and see. Today’s response is largely just a shock reaction.”

Commodity prices fell because the proposed U.S. regulations were seen as diminishing capital flows from banks, which have provided liquidity for investors.

Shanghai copper tumbled, with the benchmark third-month copper contract down 2.2 percent, while gold hovered just above a three-week low of $1,088.30 hit overnight. Crude oil fell 0.4 percent on a build-up in U.S. gasoline inventories.

U.S. stocks fell as much as 2 percent overnight, the worst one-day percentage fall since October, as financial shares in particular were hit by Obama’s plan to restrict banks’ ownership and investment in hedge funds for proprietary trading, which is for banks’ own profit and not related to serving customers.

The rules would restrict some banks’ most lucrative and risky operations, which Obama blames for helping to cause the global financial crisis.

Global markets had already recoiled in recent weeks on fears that Chinese demand would slow as Beijing tap the brakes on its roaring growth to stave off inflation and keep the economy from overheating.

Mixed data from the United States, meanwhile, have fueled concerns that the pace of its economic recovery may be slowing, and that corporate profits may not be as strong as first expected this year.

Other factors were in operation in Tokyo as well.

Toyota Motor Corp lost 3.3 percent to 4,050 yen after it said on Thursday it would recall 2.3 million vehicles in the United States to fix potentially faulty accelerator pedals, broadening a recall that already ranked as its largest ever.

Shares of Shin-Etsu Chemical lost 6 percent to 4,940 yen after the world’s biggest maker of silicon wafers used to make semiconductors reported a 53 percent fall in quarterly operating profit, hurt by weak prices and a strong yen, and it said it expected its annual profit to halve from a year earlier.

Earlier, the euro, which has been under pressure from Greece’s debt troubles, hit a nine-month low against the yen at 126.55 yen, taking the dollar down with it.

The dollar lost ground and fell to its lowest in five weeks on the yen, dropping as far as 89.85 yen before steadying around 90.00. Support for the dollar is seen around 88.80/90 yen.

The dollar index was down about 0.2 percent around 78.185, just below its 200-day moving average at 78.48, which was seen as a zone of short-term resistance.

Investors flocked to safe-haven government bonds as the equities and commodities sell-offs prompted a move out of higher-risk assets. Benchmark 10-year U.S. Treasuries rose 14/32 of a point in price overnight before pulling back.

March 10-year Japanese government bond futures rose 0.40 point to 139.38. The benchmark 10-year JGB yield fell 3.0 basis points to 1.31 percent, pulling away from a two-month high of 1.365 percent hit earlier this month.

Source: Reuters

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