Asian Stocks Fluctuate as Brokerages Downgrade Seven & I, Hynix

By Shani Raja

Sept. 4 (Bloomberg) -- Asian stocks fluctuated, with the MSCI Asia Pacific Index set for its third weekly drop in five, as brokerage downgrades of Seven & I Holdings Co. and Hynix Semiconductor Inc. countered a rally in metal prices.

Seven & I, the world’s largest convenience store operator, fell 2.3 percent in Tokyo and Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, sank 5.7 percent in Seoul. Zijin Mining Group Co., China’s largest gold miner, climbed 2.2 percent after the metal jumped to a six-month high. Henan Yuguang Gold & Lead Co. surged 10 percent in Shanghai.

The MSCI Asia Pacific Index was little changed at 112.80 as of 7:23 p.m. in Tokyo, with about as many stocks rising as falling. The gauge has lost 1 percent this week, paring its advance from a five-year low on March 9 to 60 percent. The rally has taken the average price of stocks on the measure to 1.5 times book value, close to a 12-month high.

“We’ve seen that economically things are improving, but the big question is how much of that is already in the price,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to see companies pushing up their guidance. If that doesn’t happen it means things are looking pretty full on the valuation side.”

Japan’s Nikkei 225 Stock Average lost 0.3 percent, erasing an earlier 0.4 percent advance. Daiwa Securities Group Inc. sank 6.1 percent after Sumitomo Mitsui Financial Group Inc. said it’s in talks to end a brokerage venture between the two.

China’s Shanghai Composite Index advanced 0.6 percent, and Hong Kong’s Hang Seng Index gained 2.8 percent. China Resources Enterprise Ltd. surged 5.2 percent after JPMorgan Chase & Co. and Nomura Holdings Inc. raised their ratings.

Board Changes

Australia’s S&P/ASX 200 Index gained 0.1 percent. Asciano Group, the country’s largest port and rail operator, climbed 6 percent after announcing changes to its board. Taiwan’s Taiex Index added 0.7 percent.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge climbed 0.9 percent yesterday, ending a four- day losing streak, as supermarket operator Costco Wholesale Corp. and clothier Gap Inc. reported sales that beat estimates.

Seven & I fell 2.3 percent to 2,100 yen after Hidehiko Aoki, an analyst at Bank of America Corp.’s Merrill Lynch & Co. unit, downgraded the stock to “neutral” from “buy.”

Dainippon Sumitomo Pharma Co., which offered to buy U.S. drugmaker Sepracor Inc. for $2.6 billion yesterday, sank 6.1 percent to 963 yen. Ritsuo Watanabe, also at Merrill Lynch, lowered the stock to “underperform” from “neutral” because of expiring patents at Sepracor.

Seen The Bottom?

Hynix slumped 5.7 percent to 20,800 won in Seoul. Daewoo Securities Co. cut its rating to “hold” from “buy,” saying the share price already reflects an improved earnings outlook.

“A lot of companies are saying things have seen a bottom but they’re not prepared to go out there and say they’re confident,” said Riordan. “We’re going to want to see that start to happen in the next few months.”

Zijin Mining climbed 2.2 percent to HK$7.03 in Hong Kong trading. In Sydney, Avoca Resources Ltd., an Australian producer, gained 2.7 percent to A$1.695 Australian cents, while Dominion Mining Ltd. surged 7.9 percent to A$4.37.

Gold futures in New York jumped to a six-month high yesterday, reaching $999.50 an ounce, on speculation a weak dollar will boost demand for precious metals as an alternative investment. An index of six metals in London climbed 1.6 percent yesterday, the most since Aug. 28.

Daily Limit

Lead jumped as much as 3.3 percent in London, following a 7.8 percent surge yesterday. Henan Yuguang, China’s top producer of the metal, gained by the 10 percent daily limit to 18.30 yuan. Shenzhen Zhongjin Lingnan Nonfemet Co. added 7.2 percent to 22.77 yuan.

China Resources, with interests as diverse as food processing, retailing and ports, advanced 5.2 percent to HK$19.56. JPMorgan raised its rating to “overweight” from “neutral” after the company’s profit from beverages more than doubled in the first half. Nomura upgraded the stock to “buy.”

The MSCI Asia Pacific Index’s rally since March came as economic and earnings figures bolstered optimism the worst of the global economic crisis has passed.

This week, Australia’s statistics bureau reported second- quarter gross domestic product growth that was faster than economists estimated, while Japan’s Trade Ministry said Aug. 31 that industrial production climbed 1.9 percent from June, also exceeding economist targets.

Beating Predictions

The stock rally boosted the average price of stocks in the MSCI Asia Pacific Index to 23 times estimated earnings, up from 17.6 times at the start of the year, data compiled by Bloomberg show. The S&P 500 is at 16.7 times, while the Dow Jones Stoxx 600 Index is at 14.8 times.

“I’m guessing we’ll see the correction continue before a real buying opportunity emerges,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $13 billion. “Recent data has been fundamentally strong, but the market is showing a lukewarm reaction.”

Japanese businesses cut spending for a ninth quarter as the global recession squeezed profits, the Finance Ministry said today in Tokyo, underscoring the challenge for the country’s new government to sustain an economic recovery.

Daiwa fell 6.1 percent to 508 yen, while Sumitomo Mitsui, Japan’s second-biggest bank, lost 2.1 percent to 3,770 yen. The companies said in separate statements that no final decision had been made on ending their brokerage venture.

In Sydney, Asciano climbed 6 percent to A$1.60. The company said Malcolm Broomhead will take over as chairman from Tim Poole, who will step down from the role at the company’s annual meeting in October. Broomhead is a former managing director of Melbourne-based Orica Ltd., the world’s largest maker of industrial explosives.

Babcock & Brown Infrastructure Group slumped 22 percent to 6.1 Australian cents. The fund said an asset-sale program won’t enable it to meet 2010 financial-year debt maturities, even as the company negotiates with a potential cornerstone investor.

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