Asian Stocks, U.S. Futures Fall as Recession Concern Deepens

By Shani Raja

Jan. 20 (Bloomberg) -- Asian stocks and U.S. futures slumped after the U.K. was forced to widen a rescue of the banking industry, sparking concern that the cost of bailouts will grow as the global recession deepens.

HSBC Holdings Plc, Europe’s largest bank, lost 6.7 percent in Hong Kong amid speculation the U.K. will take full control of Royal Bank of Scotland Group Plc after the lender forecast the biggest loss in British history. BHP Billiton Ltd., the world’s largest mining company, dropped 4.7 percent in Sydney after oil and aluminum prices fell. Elpida Memory Inc. tumbled 5 percent in Tokyo after postponing its earnings announcement.

“Market jitters remain as banks’ asset quality worsens in slowing economies,” said Kim Young Il, head of equities at Korea Investment Trust Management Co. in Seoul, which manages the equivalent of $6.2 billion. “The attention is now on whether this signals a second round in the financial crisis.”

The MSCI Asia Pacific Index dropped 2.2 percent to 83.14 as of 4:30 p.m. in Tokyo, with six of its members falling for each that advanced. Japan’s Nikkei 225 Stock Average lost 2.3 percent, while Hong Kong’s Hang Seng Index dropped 2.4 percent. All markets declined except China and Sri Lanka.

Europe’s Dow Jones Stoxx 600 Index slid 1.7 percent yesterday, led by RBS after it forecast a loss of as much as 28 billion pounds ($40 billion) this year.

Hankook Tire Co., South Korea’s biggest tire maker, fell the most in seven weeks today after reporting a quarterly loss. Foxconn International Holdings Ltd. slumped 7 percent in Hong Kong, while Contact Energy Ltd. tumbled 9.4 percent in New Zealand after forecasting lower profits.

Financial Crisis

Futures on the Standard & Poor’s 500 Index fell 1.2 percent, pointing to declines when U.S. markets reopen following a holiday yesterday. The S&P 500 is off to its second-worst start to a year, with analysts predicting a 28 percent drop in fourth- quarter profits, according to data compiled by Bloomberg.

Barack Obama’s inauguration later today as the 44th president of the U.S. will likely be a focus for traders as he assumes control of an economy struggling to cope with the worst financial crisis since the Great Depression.

The turmoil has dragged the world’s largest economies into recession, caused more than $1 trillion of losses at financial institutions and prompted a sell-off in global stock markets.

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

‘Economic Pearl Harbor’

In more signs today that the slowdown is deepening, Japan’s Cabinet Office said consumers became the most pessimistic since records began, while a Chinese government spokesman said official urban unemployment may climb to an almost 30-year high.

“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.”

HSBC slumped 6.7 percent to HK$58.10 even after saying it couldn’t “envisage circumstances” where it would need government funding. Mizuho Financial Group Inc., Japan’s second- largest bank by revenue, fell 6.2 percent to 228 yen. PT Bank Danamon Indonesia tumbled 12 percent to 2,575 rupiah, the biggest decline on MSCI’s Asian gauge.

RBS shares plunged 67 percent yesterday as the U.K. agreed to swap preference shares it holds in the lender for ordinary stock. In exchange for government guarantees on losses from toxic debt, RBS will have to sign a binding agreement with the Treasury on how much it will lend and on what terms.

‘Fragile Sentiment’

The cost of protecting investors in corporate bonds from default rose on concern the banking crisis is worsening. The Markit iTraxx Australia index was quoted 5 basis points higher at 310, 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 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.”

BHP slumped 4.7 percent to A$28.95. Alumina Ltd., a partner in the world’s biggest producer of the material used to make aluminum, lost 4.2 percent to A$1.255. Alumina may report a loss this year and cut its dividend because of lower forecast prices of the metal, according to ABN Amro Holding NV.

Crude oil for February delivery in New York dropped 6.3 percent to $34.20 a barrel in after-hours trading. Aluminum in London lost as much as 3.9 percent yesterday to the lowest level since September 2003.

Declining Profits

Speculation that corporate profits may decline further dragged stocks lower. Elpida lost 5 percent to 533 yen, after delaying its profit announcement by more than a week to Feb. 6, as it finalizes an affiliate’s earnings.

Hankook tumbled 9 percent to 12,100 won in Seoul, the biggest decline since Dec. 2 after reporting a fourth-quarter loss of 46.7 billion won ($34 million). Foxconn, the world’s No.1 contract maker of mobile phones, fell 7 percent to HK$2.80 after saying 2008 profit will drop.

Contact Energy, New Zealand’s biggest publicly traded power generator, plunged 9.4 percent to NZ$6.66 after saying full-year profit may plunge on rising gas costs. Australia’s Origin Energy Ltd., Contact Energy’s biggest shareholder, dipped 5.3 percent to A$14.38 in Sydney.

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