Asian Stocks Fall This Week as Recession Deepens, Oil Plunges

By Chua Kong Ho

Dec. 6 (Bloomberg) -- Asian stocks fell this week as the deepening global recession slashed consumer demand, driving commodity prices lower and dragging down materials companies and oil drillers.

BHP Billiton Ltd., the world’s biggest mining company, dropped 16 percent after oil fell more than $100 a barrel from its record in July and copper prices slumped. Honda Motor Co. sank 21 percent as November U.S. sales plunged the most since 1981. Surfwear maker Billabong International Ltd. tumbled 25 percent in Sydney after cutting its earnings forecast as its U.S. customers deferred deliveries amid the economic contraction.

“The world is in recession and earnings will fall next year for most companies the world over, including Asia,” said Hugh Young, managing director at Aberdeen Asset Management Ltd. in Singapore, overseeing about $45 billion. “Asia is in pretty good shape for surviving, not in great shape for growing.”

The MSCI Asia Pacific Index fell 3.8 percent to 79.52 this week. Raw-materials producers had the biggest percentage decline among the 10 industry groups.

MSCI’s Asian index has plunged 50 percent in 2008 as global financial companies’ losses and writedowns from the collapse of the U.S. subprime-mortgage market neared $1 trillion. Shares on the MSCI gauge are now valued at 9.7 times trailing earnings after falling to as low as 8.2 times last month. That’s half the 19.5 times on Nov. 11 last year, when the measure hit a peak of 172.32. Prior to the current market turmoil, the price-earnings ratio never dropped below 10, according to Bloomberg data.

U.S. Recession

The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a private, non-profit panel of economists that dates American business cycles, said Dec. 1. A government report said the number of Americans receiving jobless benefits in the week ended Nov. 22 jumped to the most since December 1982. A separate report showed orders at U.S. factories in October sank the most since July 2000.

Central banks worldwide stepped up efforts to arrest the economic slowdown. The European Central Bank cut its main refinancing rate by 75 basis points, the most in its 10-year history, while the Bank of England cut its benchmark rate to 2 percent, the lowest level since 1951. The Swedish and Danish central banks also lowered their key rates. The Bank of Korea said it would make a one-time interest payment on central bank reserves and buy more securities.

Japan’s Nikkei 225 Stock Average dropped 7 percent to 7,917.51. Australia’s S&P/ASX 200 Index retreated 6.8 percent. Most markets in Asia fell this week.

BHP declined 16 percent to A$26.15. Inpex Corp., Japan’s largest explorer, sank 14 percent to 529,000 yen. Woodside Petroleum Ltd., Australia’s second-biggest oil producer, retreated 16 percent to A$30.46.

Commodities Retreat

Crude oil has dropped from a peak of $147.27 on July 11 to $41.65 a barrel on the New York Mercantile Exchange. Oil prices may slide below $25 a barrel next year if the global recession spills over into China, Francisco Blanch, a London-based analyst at Merrill Lynch, said Dec. 4.

A measure of six metals traded on the London Metal Exchange, including copper and zinc, fell 14.8 percent this week.

“We’re in an environment where demand is coming off, and that’s putting commodities under pressure,” said Matt Riordan, who helps manage $3 billion at Paradise Investment Management in Sydney. “Things have been slowing down pretty sharply.”

Rio Tinto Group, the third-largest mining company, tumbled 31 percent to A$32, the biggest percentage decline on MSCI’s Asian gauge, on concern it may have difficulty refinancing debt due next year. The company plans to close its iron-ore mines in Western Australia for 12 days as part of an earlier decision to reduce output.

Vehicle Sales

Honda, Japan’s No. 2 automaker, fell 21 percent to 1,653 yen. The carmaker withdrew from Formula One racing, cutting at least 20 billion yen ($216 million) in costs, after its U.S. vehicle sales plunged 32 percent in November.

Toyota Motor Corp. dropped 12 percent to 2,650 yen. Bridgestone Corp., the world’s largest tiremaker, dropped 14 percent to 1,376 yen.

General Motors Corp. Chef Executive Rick Wagoner told lawmakers he would accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if his company doesn’t fulfill the terms.

Sack Workers

“Regardless of whether the U.S. automakers go bankrupt or stay afloat, they’ll have to sack workers,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co., which manages about $96 billion in Tokyo. “Should the companies collapse, it may trigger a series of business failures and worsen an already weakened U.S. economy.”

Billabong declined 25 percent to A$7.94. The U.S. recession has accelerated a slowdown in demand for clothing and surfing accessories, causing earnings per share to fall in the six months ending December, the Gold Coast, Australia-based company said Dec 4.

Indonesia’s PT Bumi Resources, Asia’s biggest exporter of power-station coal, slumped 25 percent to 760 rupiah after the country’s stock exchange said the company should use internal funds to fund a repurchase of its shares, instead of selling debt.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net