By Jonathan Burgos
June 18 (Bloomberg) -- Asian stocks declined, dragging the MSCI Asia Pacific Index to a three-week low, as concerns about the strength of the U.S. economy weighed on the dollar, denting prospects for export earnings.
Honda Motor Co., which gets more than half its sales in North America, dropped 3.7 percent as the dollar traded near a two-week low against the yen. Mitsubishi UFJ Financial Group Inc. sank 3.2 percent, pacing declines among banks, after Standard & Poor’s cut credit ratings on 18 U.S. lenders. Rio Tinto Group, the world’s third-largest mining company, slumped 8.2 percent as it began a $15.2 billion share sale.
The MSCI Asia Pacific Index lost 1.3 percent to 100.74 as of 1:07 p.m. in Tokyo, set to close at its lowest since May 28. A 43 percent rally from a five-year low on March 9 has taken valuations of the gauge’s stocks to the highest since September.
“Investors are using the weaker dollar as an excuse to take profit as valuations look stretched following the recent rally,” said Michiya Tomita, who helps manage $51 billion at Mitsubishi UFS Asset Management Co. in Hong Kong. “Any correction will be short-lived as long-term fund managers are still sitting on the sidelines with their cash.”
Japan’s Nikkei 225 Stock Average fell 1.7 percent to 9,670.11. Australia’s S&P/ASX 200 Index lost 0.6 percent. The Shanghai Composite Index gained 0.9 percent after the World Bank raised its 2009 growth forecast for China.
Sweeping Overhaul
Futures on the Standard & Poor’s 500 Index gained 0.2 percent. The gauge dropped 0.1 percent yesterday as President Barack Obama proposed the most sweeping overhaul of the U.S. financial regulatory system in 75 years. The plan includes an agency for monitoring consumer financial products and bringing hedge and private equity funds under federal scrutiny.
Japanese exporters fell after the yen strengthened versus the dollar yesterday to the 95 level for the first time since June 4. The Japanese currency appreciated to as much as 95.52 from 96.16 at the close of stock trading in Tokyo. The dollar also fell against currencies in Australia, Singapore and Malaysia.
Honda declined 3.7 percent to 2,575 yen. Sony Corp., maker of the PlayStation 3 game machine, sank 3.5 percent to 2,465 yen. Makers of electronics and cars accounted for 38 percent of the Topix Index’s 1.6 percent drop today, Bloomberg data show.
“There’s no clear momentum to buy or sell right now,” said Mitsushige Akino, who oversees about $574 million at Ichiyoshi Investment Management Co. in Tokyo. “The economy has clearly hit bottom, but that’s been priced in.”
Equity Stake
The rally since March drove the average valuation of companies in the MSCI Asia Pacific Index to 1.5 times the book value of assets as of the end of last week, according to Bloomberg data. That was the highest level since Sept. 26.
Fund managers were “overweight” stocks for the first time in 18 months as optimism on economic growth and corporate profits surged to a five-year high, a Merrill Lynch & Co. survey showed.
“Over the last couple of months we’ve seen a rapid rise in confidence reflected in high share market levels,” said Jason Teh, who helps manage more than $2.5 billion at Investors Mutual Ltd. in Sydney. “What we really require to underpin prices is confirmation that the economic statistics can catch up.”
Financial stocks were the biggest drag on the MSCI Asia Pacific Index after S&P said the business environment for U.S. banks will become “less favorable.” The agency cut the credit ratings of five lenders to “junk” status.
Mitsubishi UFJ, which invested $9 billion in Morgan Stanley last year, fell 3.2 percent to 585 yen. HSBC Holdings Plc, which gets 24 percent of its revenue in North America, lost 1.6 percent to HK$65.70 in Hong Kong.
Balance-Sheet Risk
Finance companies worldwide have recorded more than $1.4 trillion in writedowns and credit losses since 2007 as the U.S. housing market collapsed and the global economy sank into recession.
“Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality,” S&P analyst Rodrigo Quintanilla said in a statement yesterday. “Such a transition period justifies lower ratings as industry players implement changes.”
Rio slumped 8.2 percent to A$52.95. The company’s stock sale, offering 21 shares for every 40 held at a price of A$28.29, began yesterday. Rio is selling equity and has also agreed to an iron ore joint venture with BHP Billiton Ltd. to reduce debt.
“There might be a bit of position adjustment on the back of” the share sale, said James Foulsham, a Sydney-based senior dealer at CMC Markets. With “such a major corporate action, sometimes you get the price moving about a bit after it’s gone through.”
To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.
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