Asia Stocks Decline as RBS Forecast Signals Deepening Recession

By Shani Raja

Jan. 20 (Bloomberg) -- Asian stocks slumped, led by commodity producers and banks, after Royal Bank of Scotland Group Plc’s forecast of the biggest loss in U.K. corporate history heightened concern the global recession is deepening.

BHP Billiton Ltd., the world’s largest mining company, dropped 4.9 percent in Sydney after oil and aluminum prices fell. Westpac Banking Corp., Australia’s biggest bank by value, slumped 5.5 percent after corporate bond risk increased. Elpida Memory Inc., Japan’s biggest memory-chip maker, plunged 7.3 percent after postponing its earnings announcement.

“The RBS forecast has hit already fragile sentiment,” said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $85 billion. “It brings back all the doubts about more writedowns. If you can’t get stabilization in the credit markets, it’s hard to get any traction in economic activity.”

The MSCI Asia Pacific Index dropped 2.5 percent to 82.89 as of 10:41 a.m. in Tokyo, as 12 of its constituents fell for each one that advanced. Japan’s Nikkei 225 Stock Average lost 3.4 percent to 7,979.81. All markets open for trading declined except the Philippines.

Europe’s Dow Jones Stoxx 600 Index slid 1.7 percent yesterday, with RBS plunging 67 percent after saying it expects to post a loss of as much as 28 billion pounds ($40 billion) this year.

Futures on the Standard & Poor’s 500 Index fell 1.6 percent today, pointing to declines when U.S. markets reopen following yesterday’s holiday for Martin Luther King Day. Barack Obama’s inauguration later today as the 44th president of the U.S. will likely be a focus for U.S. traders.

‘Economic Pearl Harbor’

His administration inherits an economy struggling to cope with the worst financial crisis since the Great Depression. The world’s largest economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to economists surveyed by Bloomberg last week.

MSCI’s Asian gauge slumped 43 percent in 2008, its worst year on record, as the global recession curbed demand for the region’s raw materials, automobiles and computers. The average valuation of the measure’s constituents has fallen about two- fifths in the past year to 10 times reported profit.

“We are in the middle of the economic Pearl Harbor right now,” billionaire investor and Berkshire Hathaway Inc. Chairman Warren Buffett told NBC in an interview aired on Jan. 18. “Now we have to get mobilized to win the war, which we will.”

BHP slumped 4.9 percent to A$28.88. Alumina Ltd., a partner in the world’s biggest producer of the material used to make aluminum, lost 5.3 percent to A$1.24.

Corporate Bond Risk

Crude oil for February delivery dropped 5.8 percent to $34.40 a barrel in New York yesterday, the sharpest decline since Jan. 12. Aluminum for delivery in three months dived as much as 3.9 percent to the lowest level since September 2003 in London.

Westpac dipped 4.6 percent to A$15.35 in Sydney. Mizuho Financial Group Inc., Japan’s second-largest bank by revenue, fell 6.2 percent to 228 yen.

Banks dropped as the cost of protecting investors in corporate bonds from default rose. The Markit iTraxx Australia index was quoted 5 basis points higher at 310 in Sydney, Australia & New Zealand Banking Group Ltd. prices show. The Markit iTraxx Japan index added 2.5 basis points to 297.5, according to Barclays Capital prices.

The indexes are benchmarks for protecting bonds against default and traders use it to speculate on changes in credit quality. Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.