Asian Stocks Decline to Two-Year Low on Credit-Loss Concern

By Chen Shiyin and Masaki Kondo

Aug. 19 (Bloomberg) -- Asian stocks fell, driving the region's benchmark index to a two-year low, on renewed concern credit-market turmoil will hurt profits at financial companies and curtail economic growth.

National Australia Bank Ltd. declined 1.4 percent after Credit Suisse Group said the lender may increase provisions and on speculation the U.S. government will bail out Freddie Mac and Fannie Mae. T&D Holdings Inc., Japan's largest publicly traded life insurer, led the Nikkei 225 Stock Average to its biggest drop in six weeks. Virgin Blue Holdings Ltd. slumped 24 percent in Sydney after earnings tumbled on higher fuel costs.

``Investors are so scared,'' said Masaru Hamasaki, a senior strategist in Tokyo at Toyota Asset Management Co., which manages $3.3 billion. ``What lies underneath today's decline is investors' concerns about the prospects for the global economy. Anything related to financial companies is taken negatively.''

The MSCI Asia Pacific Index lost 1.4 percent to 123.38 as of 1:10 p.m. in Tokyo, set for the lowest close since July 26, 2006. Financial companies were the biggest drag, accounting for more than a quarter of the benchmark index's retreat.

The measure has slumped 22 percent in 2008 as soaring inflation hurt global economies and the world's largest financial companies posted writedowns and credit losses of more than $500 billion.

Japan's Nikkei 225 Stock Average slipped 2.4 percent to 12,851.18, on course for its largest drop since July 8. Benchmarks retreated in all other Asian markets, except China.

Financials Drop

Don Quijote Inc., a Japanese discount-store operator, tumbled after forecasting earnings that missed analyst estimates.

National Australia, the country's largest bank by assets, dropped 34 cents to A$24.51, on course for its lowest close since Aug. 4. The stock was cut to ``underperform'' from ``neutral'' by Credit Suisse analysts, who lowered their 2009 and 2010 earnings estimates to factor in the prospect of additional provisions.

T&D slumped 5.6 percent to 5,350 yen. Sumitomo Mitsui Financial Group Inc., Japan's second-largest publicly traded bank, fell 2.4 percent to 684,000 yen.

A measure of financial companies on MSCI's Asian index has tumbled 27 percent this year, the largest decline among its 10 groups. Barron's reported yesterday that the U.S. government expects Fannie Mae and Freddie Mac will fail to raise enough equity to offset credit losses, prompting a Treasury bailout.

In the U.S., the Standard & Poor's 500 Index had its largest drop in more than a week, with Freddie Mac and Fannie Mae, the biggest U.S. home-loan financiers, slumping to the lowest levels in almost two decades. S&P 500 futures were little changed.

`Subprime Contagion'

A bailout ``adds to the speculation that no one really knows the extent of assets that were infected by the subprime contagion,'' said Olan Caperina, who helps manage about $6.7 billion at BPI Asset Management Inc. in Manila.

Mitsubishi UFJ Financial Group Inc., Japan's No. 1 bank, declined 2 percent to 828 yen. It offered $73.50 a share for the 35 percent of UnionBanCal, a Californian lender that managed to dodge the subprime lending crisis, it doesn't already own, the Japanese company said yesterday.

In Sydney, Virgin Blue tumbled 24 percent to 88 Australian cents. That will be its largest retreat since April 14. Net income plunged 55 percent from a year earlier as rising fuel costs eroded gains from higher passenger numbers, Australia's second-biggest airline said today.

Malaysian Airline System Bhd., Southeast Asia's third- largest carrier, slipped 1.7 percent to 3.54 ringgit after reporting its second consecutive decline in quarterly profit.

Don Quijote dropped 6.6 percent to 1,868 yen after saying net income for the year ending June 2009 will increase 11 percent, missing some analyst estimates.

OneSteel Ltd., Australia's second-largest steelmaker, jumped 7.9 percent to A$6.25, the largest gain on MSCI's Asian index today. Higher steel prices and iron-ore sales helped drive a 57 percent increase in second-half profit.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.