Asian Stocks Slump as Earnings Outlook Worsens; Posco Declines

By Patrick Rial and Ian Sayson

Oct. 15 (Bloomberg) -- Asian stocks declined, a day after the region's benchmark index rallied the most in a decade, as concern earnings will deteriorate overshadowed a $2 trillion global bank rescue.

Posco, Asia's third-largest steelmaker, plunged 8.5 percent in Seoul after saying demand will fall this quarter, while BHP Billiton Ltd. lost 4.2 percent as oil dropped. Kawasaki Kisen Kaisha Ltd., Japan's third-biggest shipping line operator by sales, tumbled 6.8 percent after freight rates slumped to a three-year low. China Construction Bank Corp. fell 4.1 percent in Hong Kong after Citigroup Inc. said Chinese lenders' profits may decline in 2009 as bad loans rise.

``Markets are still on a downward phase,'' Masahiko Ejiri, who helps manage about $30 billion at Mizuho Asset Management Co., said in Tokyo. ``Many are anticipating weaknesses in economies. We have to have some kind of evidence that the financial rescue plan is working.''

The MSCI Asia Pacific Index lost 0.9 percent to 95.73 as of 3:47 p.m. in Tokyo, led by producers of commodities and consumer discretionary goods. About two stocks fell for each that rose on the measure, which has lost 39 percent this year on concern frozen credit markets will trigger a global recession.

Japan's Nikkei 225 Stock Average rose 1.1 percent to 9,547.47, erasing an earlier 1.9 percent retreat. All other benchmark indexes in the region fell apart from Vietnam. Hong Kong's Hang Seng Index dropped 2.3 percent, led by Cnooc Ltd.

Treasuries and the yen advanced. Money markets rates fell after Japan pledged to offer an unlimited supply of dollars to lenders and Hong Kong announced a guarantee of all bank deposits, joining global efforts to unlock credit markets.

U.S. Futures

S&P futures were little changed. The index fell 0.5 percent to 998.01 yesterday, after gaining the most since the 1930s the previous day, on concern the outlook for earnings will worsen. PepsiCo Inc. lost 12 percent after lowering its profit forecast. Intel Corp. climbed as much as 8.9 percent in extended trading after the chipmaker said fourth-quarter sales may rise.

Posco slumped 8.5 percent to 354,500 won, as investors shrugged off a 40 percent gain in third-quarter profit. The last three months of the year will be ``very difficult,'' Chief Financial Officer Lee Dong Hee said. JPMorgan Chase & Co. cut its recommendation on the stock to ``neutral.''

Nippon Steel Corp., the world's second-largest mill, lost 9.3 percent to 331 yen in Tokyo. Dowa Holdings Co., Japan's second-largest smelter and a metals recycler, plunged 10 percent to 352 yen after lowering its profit forecast on slumping demand.

Oil Declines

``This isn't a situation where we can be at all optimistic about the world economy,'' said Hisakazu Amano, head of fund management at T&D Asset Management Co., which oversees the equivalent of $39 billion in Tokyo.

BHP, Australia's largest oil producer, slipped 4.2 percent, to A$29.70. Woodside Petroleum Ltd., the second biggest, dropped 3.1 percent to A$39.15.

Crude oil fell for a second day in New York amid skepticism that plans for rescuing banks will be enough to boost economic growth and fuel demand. Oil lost as much as 1 percent to $77.85 a barrel, extending yesterday's 3.2 percent decline.

A U.S. proposal to inject $250 billion into financial institutions followed an announcement that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.

Nouriel Roubini, the New York University professor of economics who predicted the current crisis in 2006, said the U.S. will suffer its worst recession in 40 years as home prices continue to plunge and the unemployment rate rises to 9 percent.

Share Valuations

Shares on MSCI's Asian gauge traded at less than 10 times reported earnings at the end of last week, the cheapest since Bloomberg began tracking the data in 1995. They currently trade at 10.6 times. In contrast, stocks on the Standard & Poor's 500 Index were valued at 17 times profit yesterday.

Shipping companies plunged as freight rates slumped. The Baltic Dry Index, a measure of commodity-shipping costs, lost 8.5 percent yesterday, a seventh consecutive drop and the lowest level since August 2005.

Kawasaki Kisen tumbled 6.8 percent to 464 yen after UBS AG cut its earnings forecast for the bulk transporter. Hanjin Shipping Co., South Korea's biggest shipping line, declined 6 percent to 22,700 won.

Cosco Corp. Singapore Ltd., the shipbuilding and repair unit of China's biggest shipping company, fell by a record 19 percent to 80 Singapore cents. Citigroup Inc. cut its ratings on Cosco to ``hold,'' saying the credit crisis will hurt project financing.

Carmakers Slump

Mazda Motor Corp., a third owned by Ford Motor Co., plunged 9.2 percent to 285 yen, its lowest level since December 2003, after the Nikkei newspaper said the company has suspended plans to build a factory.

Yamaha Motor Co. slumped 10 percent to 1,111 yen. The world's second-largest motorcycle maker will halt production at a Brazilian plant for 10 days as the global credit crisis crimps demand, while Nikko Citigroup Ltd. lowered the shares to ``sell,'' citing the stronger yen and weaker sales outlook.

The yen climbed 0.5 percent to 101.60 per dollar, its first advance in five days.

Japan's overnight call rate dropped 10 basis points to 0.30 percent. Hong Kong's three-month interbank lending rate, or Hibor, fell 9 basis points to 4.34 percent, the lowest in the past week. Singapore's three-month U.S. dollar rate dropped 9 basis points to 4.57 percent.

Hibor fell for a second day after the Hong Kong Monetary Authority said it will use its foreign exchange reserves to guarantee bank deposits. The government will also set up a fund to provide additional capital to lenders if needed.

Bank Stocks

Bank of East Asia Ltd., which became the first Hong Kong bank to have a run on it in more than a decade, jumped 3.4 percent to HK$22.85.

China Construction Bank, the nation's second-biggest lender, fell 4.1 percent to HK$4.17. Bank of Communications Ltd., China's fifth largest, slumped 3.1 percent to HK$6.25. Citigroup analysts cut their earnings estimates for domestic banks by an average 20 percent for 2009 and 26 percent for 2010.

Treasuries gained for the first time in six days. Ten-year note yields fell 5 basis points to 4.03 percent as of 6:35 a.m. in London, according to data compiled to Bloomberg.

The risk of Asia-Pacific companies defaulting on their debt increased, snapping a two-day decline. The Markit iTraxx Japan index rose 6 basis points to 186, according to prices from BNP Paribas SA. Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.

``Although the market welcomes public money injections, they still recognize the problem with the corporate sector,'' said Fumihito Gotoh of UBS AG, Japan's top-ranked credit analyst in a Nikkei Veritas survey. ``We are seeing deteriorating fundamentals.''

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Ian C. Sayson in Manila at isayson@bloomberg.net.