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Asian stocks retreat on risk worries

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Asian stocks retreated from 22-month highs on Friday as fresh doubts about the U.S. economic recovery and Greece’s rescue package prompted a broad pull back from risky assets.

The doubts, plus record appetite for emerging market bonds, helped push up some regional government debt prices and the dollar gained broadly against Asian currencies.

Stock markets could be on the verge of a correction after a strong run up as investors take some profits and shift the funds into safer havens.

“Having seen double digit gains in share markets since early February, with expectations running very high coming into the U.S. March quarter profit-reporting season and China still in tightening mode, there is a high risk of a short-term pause or correction in share markets.” Shane Oliver, head of investment strategy at AMP Capital Investors, said in an emailed note to clients.

The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS fell over 1 percent, led by information technology .MIAPJIT00PUS and consumer staples .MIAPJCS00PUS, following a 16 percent rally from a February low.

Although Wall Street firmed modestly on Thursday, S&P 500 futures slipped 0.5 percent after Google Inc’s (GOOG.O) earnings report after the close failed to impress investors accustomed to blowout results.

The S&P 500 index .SPX eked out a gain of 0.1 percent in regular trading as encouraging profits from United Parcel Service (UPS.N) was partly offset by an unexpected sharp rise in new jobless claims last week.

Japan’s Nikkei average dropped 1.35 percent, its sharpest fall in over seven weeks, with a firmer yen offering investors an excuse to take profits in exporters such as Tokyo Electron (8035.T).

“Expectations for solid earnings appear to have run their course as you can see in today’s banking shares. The focus is now shifting to this financial year to March rather than immediate numbers,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

LOW RISK

The dollar dipped 0.3 percent against the yen to around 92.73 yen but the dollar index, reflecting its trade against a basket of major currencies, rose 0.2 percent.

The dollar showed more solid gains against Asian currencies with the Korean won dropping 0.6 percent and the Malaysia ringgit down 0.5 percent.

The Australian and New Zealand dollars struggled against the yen, slipping further from multi-month highs as sluggish equities prompted funds to take profits.

The euro was on the backfoot, after the cost of insuring against a Greek default rose and spreads between Greek and German bond yields widened to near record levels.

European officials and the IMF have agreed to make available 45 billion euros in loans, but there are questions about how the package would be implemented.

Japanese government bond futures rose to their highest levels in a month, a day after a strong five-year auction and as traders took cues from a fall in Tokyo shares.

South Korean government bond prices edged up early on Friday, with treasury futures extending gains on resumed foreign buying.

Both benefited from U.S. Treasuries, which rallied as the weak U.S. labor market figures overshadowed surveys showing strength in U.S. manufacturing.

Latest data from fund-tracking firm EPFR showed that emerging market bond funds set an all-time weekly inflow record for the week ending April 14, taking in $1.8 billion of new money.

The combined emerging market equity funds tracked by EPFR Global showed a net investment inflow for the ninth straight week in the second week of April, but the $996.6 million they took in was only a third of the previous week’s tally.

Seoul shares edged lower and were down almost 0.9 percent.

“The market has been on a steep upward run since last month, perhaps a little too much a little too fast. It’s now in technical correction territory,” said Lim Dong-min, a market analyst at KB Investment & Securities.

Shares in Australia retreated 0.5 percent by midday, with banks giving up morning gains and miners weighed down by lackluster base metals prices.

U.S. crude futures slipped toward $85 a barrel, adding to losses the previous day when a firmer dollar and mixed economic data sapped sentiment.

Source: Reuters

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