Asian Stocks Fall on Lower Commodity Prices, Earnings Reports

By Patrick Rial and Jonathan Burgos

July 29 (Bloomberg) -- Asian stocks fell for the first time in 12 days as lower commodity prices and disappointing profit reports raised concern the rally had made equities expensive relative to earnings prospects.

Jiangxi Copper Co. slumped 5.9 percent in Shanghai as it forecast a drop in profit and prices of the metal slumped. China Petroleum & Chemical Corp., Asia’s biggest oil refiner, sank 4.3 percent in Hong Kong as the Chinese government cut gasoline prices. Shimano Inc., Japan’s No. 1 maker of bicycle components, and DeNA Co., which operates auction Web sites, slumped more than 5 percent on lower earnings.

The MSCI Asia Pacific Index lost 0.6 percent to 109.92 as of 2:57 p.m. in Tokyo, with almost two stocks falling for each one that rose. The gauge had climbed 13 percent in the past 11 days, the longest winning streak since January 2004. The rally took average company valuations to the highest since March 30.

“Investors are getting more selective now since equities are no longer cheap,” said Manpreet Gill, Asian strategist at Barclays Wealth, which has $238 billion in assets. “A further correction is possible.”

Hong Kong’s Hang Seng Index slumped 1.6 percent, while China’s Shanghai Composite Index sank 2.5 percent. China Cosco Holdings Co., the world’s biggest operator of dry-bulk ships, sank 5.2 percent in Hong Kong after forecasting a loss.

Japan’s Nikkei 225 Stock Average added 0.3 percent. JFE Holdings Inc., Japan’s second-largest steelmaker, and Hitachi Ltd., the country’s biggest manufacturer, climbed more than 3 percent on brokerage upgrades. China State Construction Engineering Corp. jumped 62 percent on its first day of trading in Shanghai, while BBMG Corp., the biggest cement supplier in Beijing, surged 60 percent in its Hong Kong debut.

Consumer Confidence

Futures on the Standard & Poor’s 500 Index lost 0.3 percent. The gauge fell 0.3 percent yesterday after the Conference Board’s index of U.S. consumer confidence slid to 46.6 in July, compared with the 49 projected by economists.

The report caused commodity prices to decline. A gauge of six metals in London sank 1.2 percent yesterday, the first decline in 12 days. Copper fell the most in two weeks, while crude oil retreated 1.7 percent to $67.23 a barrel in New York, the first drop in four days.

Jiangxi Copper, China’s largest producer of the metal, lost 5.9 percent to 44.03 yuan in Shanghai after saying first-half profit may fall between 57 percent and 64 percent from a year earlier. Rio Tinto Group, the world’s No. 3 mining company, slumped 2.3 percent in Sydney to A$58.06.

Lower Prices

China Petroleum, commonly known as Sinopec, fell 4.3 percent to HK$6.83. China’s government cut prices on gasoline and diesel by at least 3.3 percent, reversing a trend of rising ceilings. Lower prices reduce profit margins for refiners.

Shimano slumped 5 percent to 3,650 yen after profit fell 48 percent in the first half of the year. DeNA tumbled 9.1 percent, the MSCI Asia Pacific Index’s biggest decline, to 289,700 yen after first-quarter net income dropped by 26 percent. KBC Securities Japan downgraded the stock to “sell,” saying the company’s results had “disappointed.”

In Hong Kong, China Cosco sank 5.2 percent to HK$11 after saying it expects to post a net loss for the first half of 2009 because the global recession hurt international trade.

Analysts have boosted estimates since the beginning of April for companies in Asia outside Japan, according to data compiled by Bloomberg. Profit forecasts have actually declined within Japan, the data show.

Japanese Production

The MSCI Asia Pacific Index rallied 57 percent through yesterday from a more than five-year low on March 9 on rising confidence the worst of the global recession has passed. A government report tomorrow may show Japan’s manufacturers increased production for a fourth month in June, capping the largest quarterly output expansion in more than 50 years.

Federal Reserve Bank of San Francisco President Janet Yellen said yesterday the U.S. economy is showing the “first solid signs” of emerging from the recession and should resume growth later this year.

Companies in the MSCI Asia traded at an average 24.7 times estimated profit as of yesterday, the highest since March 30, as investors bet earnings will recover. The ratio compares with 16.3 times for the Standard & Poor’s 500 Index.

JFE, the steelmaker that yesterday forecast a return to profit, rose 3.7 percent to 3,680 yen. Takashi Enomoto, an analyst at Bank of America Corp.’s Merrill Lynch & Co. unit, boosted his target price on the stock as exports to China are rising and the shares look cheap based on estimated earnings.

Steelmakers Advance

Hyundai Steel Co., South Korea’s biggest maker of construction steel, advanced 4.5 percent to 66,800 won. The company reported second-quarter profit that beat analyst estimates on a stronger won and lower costs.

The “market environment may improve in the second half, helped by increasing demand from the public sector and seasonal demand,” the company said in an e-mailed statement.

Hitachi climbed 5.1 percent to 308 yen. The company reported a 50 billion yen ($529 million) operating loss yesterday, which Nomura Holdings Inc. analyst Masaya Yamasaki said was likely better than the company’s own projection. The shares were boosted to “overweight” at JPMorgan Chase & Co.

“Companies have moved at a surprisingly fast speed to bring down costs, which is being reflected in higher earnings,” said Takeshi Osawa, a senior fund manager in Tokyo at Norinchukin Zenkyoren Asset Management Co., which oversees about $10 billion.

China State Construction, the nation’s biggest homebuilder, jumped 62 percent to 6.76 yuan on its first trading day in Shanghai. The 50.2 billion yuan ($7.3 billion) raised in the initial sale was the world’s largest initial public offering in 16 months.

BBMG rallied 60 percent to HK$10.20. It raised HK$5.95 billion ($767.7 million) in Hong Kong’s second-biggest public offering this year.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Jonathan Burgos in Singapore at burgos4@bloomberg.net.