Asian Stocks Fall as Earnings Outlook Worsens; Confidence Drops

By Patrick Rial and Kyung Bok Cho

Nov. 11 (Bloomberg) -- Asian stocks dropped on concern the outlook for company earnings is worsening after Citizen Holdings Co. cut its profit forecast, Alumina Ltd. scrapped expansion plans and Australian business confidence fell to a record low.

Citizen, the world's largest watchmaker, plunged 9.5 percent in Tokyo after lowering its annual forecast by a third. Alumina tumbled 12 percent in Sydney. Macquarie Group Ltd. dropped 10 percent as slumping sentiment suggested Australia's economy may fall into a recession for the first time since 1991. Hanjin Shipping Co., South Korea's largest shipping line, slid 15 percent after posting a loss.

``We're more worried about earnings going forward,'' said Lim Chang Gue, who oversees the equivalent of $1.5 billion at Samsung Investment Trust Management Co. in Seoul. ``If you have a pretty long-term investment horizon then these levels are a buying opportunity. But for the next year, I wonder if the expected returns can justify the risk.''

The MSCI Asia Pacific Index retreated 3.1 percent to 87.50 at 3:40 p.m. in Tokyo. About seven stocks fell for every two that rose and all 10 industry groups dropped, led by materials producers. Shares on the measure trade at 11 times trailing earnings, compared with a peak of 19 times a year ago.

Japan's Nikkei 225 Stock Average dropped 3 percent to 8,808.50. Seiko Holdings Corp. plunged after cutting its full- year profit target. Australia's S&P/ASX 200 Index slumped 3.6 percent, led by Wesfarmers Ltd., the country's No. 2 retailer.

Futures on the Standard & Poor's 500 Index declined 0.3 percent. The S&P 500 slid 1.3 percent yesterday after Barclays PLC said Goldman Sachs Group Inc. may have its first quarterly loss and Deutsche Bank AG said General Motors Corp's shares may go to zero.

China Inflation

MSCI's Asian index earlier pared declines after China's inflation cooled to the slowest pace in 17 months, giving the central bank more leeway to bolster growth in Asia's second- largest economy. China on Nov. 9 announced a $586 billion stimulus package to boost domestic demand as the credit crunch slows the pace of exports.

Citizen lost 9.5 percent to 504 yen in Tokyo. The company slashed its net income forecast for the year ending in March due to a worsening overseas sales outlook for wristwatches and mobile phone components.

Seiko, a Japanese maker of watches and camera parts, slid 1- percent to 240 yen after cutting its profit target by 91 percent, citing declining sales.

Estimate Lowered

Japanese corporate earnings are not likely to start recovering until the second half of fiscal 2010 at the earliest, Shinichi Ichikawa, chief equity strategist at Credit Suisse Group, wrote in a report yesterday. He lowered his 2008 pretax-profit estimate on Japanese companies to a 40 percent decline from a 30 percent drop.

Japan's Economy Watchers index, a seven-year old survey of barbers, taxi drivers and others who deal with consumers, dropped to a record-low of 22.6 last month, the Cabinet Office said today in Tokyo.

Alumina, which is partnering with Alcoa Inc., lost 12 percent to A$1.97, its lowest close since Oct. 17, after the companies said they have suspended expansion work on the Wagerup refinery due to the global financial crisis.

MSCI's Asian index is down 44 percent in 2008 as the credit- market turmoil slows global growth, denting demand for Asian exports. The International Monetary Fund said last week the U.S., Europe and Japan may experience the first simultaneous recession in the post-World War II era.

Macquarie, Wesfarmers

Macquarie dropped 10 percent to A$26.81. Australia's business sentiment index slid to minus 29 from September, the lowest level since the series began in 1989, according to a National Australia Bank survey. Wesfarmers declined 12 percent to A$20.13, set for its biggest loss since Oct. 16.

In Hong Kong, HSBC Holdings Plc declined 3 percent to HK$89.50. Europe's biggest bank set aside a larger-than-expected $4.3 billion to cover bad loans in the U.S. and forecast ``further deterioration.''

The global economic slowdown is also crimping demand for travel. China Eastern Airlines Corp., the country's third-biggest carrier, slid 4 percent to HK$0.97 after saying it will take about a tenth of its fleet out of service. AirAsia Bhd. lost 1.8 percent to 1.10 ringgit after Southeast Asia's largest discount carrier scrapped fuel surcharges on all flights.

Hanjin Shipping lost 15 percent to 16,950 won after posting a third-quarter loss because of a weaker won, higher fuel costs and waning demand. The won fell 13 percent against the U.S. currency in the quarter, raised the value of the company's dollar-denominated debt.

Trading Suspended

Asciano Group, the Australian coal transporter that rejected a buyout offer from David Bonderman's TPG Capital, plunged 60 percent to 69 cents before trading was halted after Citigroup Inc. said investors should cut their losses and sell.

China's steelmakers advanced on speculation the nation's central bank will add to three interest-rate reductions in the past two months after consumer prices gained by a smaller amount than economists estimated. Inflation rose 4 percent in October from a year earlier, less than half the 12-year high reached in February.

Baoshan Iron & Steel Co., China's largest steelmaker, added 3 percent to 5.19 yuan.

Interest rate cuts by central banks across the world and economic stimulus packages by governments from China to Japan and South Korea have driven MSCI's Asian index 18 percent higher from a five-year low on Oct. 27.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Kyung Bok Cho in Seoul at kcho7@bloomberg.net.