By Patrick Rial
June 8 (Bloomberg) -- Asian stocks fell, led by materials producers and energy companies, on concern a three-month rally had made shares expensive relative to earnings prospects.
Feng Hsin Iron & Steel Co., which last week rose to a more than eight-month high, lost 6.5 percent in Taipei. Cnooc Ltd., China’s largest offshore oil producer, sank 2.7 percent as oil prices retreated for a second day. Daido Steel Co. slumped 3.5 percent in Tokyo on a Goldman Sachs Group Inc. downgrade.
“Valuations are not cheap,” said Pauline Dan, chief investment officer at Samsung Investment Trust Management in Hong Kong, which oversees $67.6 billion in assets. “Investors who have been pricing in a quick recovery are wondering whether the ‘green shoots’ we’ve seen will turn into big trees.”
The MSCI Asia Pacific Index fell 0.8 percent at 102.54 as of 4:53 p.m. in Tokyo, with five stocks declining for every four that rose. The measure has climbed 45 percent from a more than five-year low on March 9 on optimism global growth is recovering. The rally drove valuations to an eight-month high.
Japan’s Nikkei 225 Stock Average climbed 1 percent as a weaker yen boosted the earnings outlook for Canon Inc., which gets 28 percent of its revenue in the Americas. Komatsu Ltd., the world’s No. 2 maker of earthmovers, surged 6 percent after two brokerages recommended buying the stock.
South Korea’s Samsung Engineering Co. climbed 4.5 percent after Mirae Asset Securities Co. raised its share-price target. Taiwan’s Taiex Index sank 2.1 percent. Australia’s stock market is closed for a holiday.
Rising Valuations
Futures on the Standard & Poor’s 500 Index lost 0.9 percent. The gauge fell 0.3 percent on June 5 as concern higher borrowing costs will threaten the economic recovery overshadowed the better-than-estimated employment report.
The stock rally since March has lifted the average valuation of companies on MSCI’s Asian index to 1.5 times the book value of assets, the highest level since Sept. 29.
Taiwan’s Taiex Index, which rallied 15 percent last month, had the biggest drop in Asia today. Feng Hsin sank 6.5 percent to NT$49.20. Cathay Financial Holding Co., Taiwan’s largest listed financial-services company, slid 5 percent to NT$48.95, paring its gain in the past month to 7.8 percent.
“Taiwan shares are overvalued after rising so much in May, so there are foreign investors selling ,” said Kevin Yang, who manages $150 million as chief investment officer of Paradigm Asset Management Co. in Taipei.
Best Performers
Cnooc lost 2.7 percent to HK$10.88. Oil futures in New York dropped 1.7 percent in after-hours trading, adding to a 0.5 percent decline on June 5.
PetroChina Co., China’s largest oil producer, sank 2.1 percent to HK$9.19. The drop followed three weeks of gains that took its relative strength index, a gauge of how rapidly prices have risen or fallen, above the 70 threshold some traders use as a sell signal.
Raw materials producers and energy shares are the best performing of the MSCI Asia Pacific Index’s 10 industry groups in the past month on optimism stronger economic growth will fuel demand for oil and metals.
Daido Steel Co. slumped 3.5 percent to 447 yen after being cut to “neutral” from “buy” at Goldman Sachs. The stock closed last week at its highest level since Oct. 1.
Canon, the world’s largest camera maker, rose 3.4 percent to 3,360 yen on optimism a decline in the yen will boost the value of overseas sales. Mazda Motor Corp., which exports about 80 percent of its production, surged 6.1 percent to 294 yen.
Weaker Yen
The yen traded at 98.64 per dollar after weakening to as low as 98.89 on June 5, a level not seen in a month, after U.S. payrolls data boosted demand for the country’s assets. The U.S. Labor Department said on June 5 payrolls fell by 345,000 in May, compared with an average estimate for a decrease of 520,000 jobs in a Bloomberg survey of economists.
“The recent trend has been for the markets to rise on economic recovery hopes, but today’s move is more based on the substantial move by the yen,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co. in Tokyo, which oversees the equivalent of $96 billion.
Stocks rose today even as a government report showed Japan’s current-account surplus narrowed in April as the global recession cut demand for exports. Japan’s former Economic and Fiscal Policy Minister Hiroko Ota said in a June 4 interview that the world’s second-largest economy is likely to stumble again later this year after a temporary rebound.
Komatsu, which gets more than a fifth of its sales in the Americas, jumped 6 percent to 1,560 yen. Morgan Stanley started coverage of the company with an “overweight” recommendation and Nomura Holdings Inc. upgraded the stock to “buy” from “neutral.”
Brokerage Upgrades
Nomura, Japan’s largest brokerage, gained 4.9 percent to 800 yen as it was raised to “overweight” from “equal weight” at Morgan Stanley.
Samsung Engineering, South Korea’s biggest engineering company, climbed 4.5 percent to 86,700 won.
Mirae Asset Securities lifted its target for Samsung Engineering’s share price to 117,000 won from 91,000 won and maintained its “buy” recommendation in a report today. Samsung Engineering submitted the lowest bids for four overseas projects, which should lead to orders, the brokerage said.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
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