By Shani Raja
Jan. 25 (Bloomberg) -- Asian stocks fell for a sixth day, dragging Hong Kong’s Hang Seng Index 10 percent below its November high, on concern Chinese banks need more capital and that profit growth won’t be enough to justify equity valuations.
Bank of China Ltd. lost 2.1 percent in Hong Kong on plans to raise $5.86 billion from selling convertible bonds. BHP Billiton Ltd., the world’s largest mining company, sank 1.1 percent in Sydney as copper and oil futures declined. Honda Motor Co., which receives 42 percent of its sales from North America, declined 1.7 percent on speculation U.S. measures to restrict risk-taking at banks will derail the global recovery.
The MSCI Asia Pacific Index lost 0.7 percent to 121.57 as of 7:42 p.m. in Tokyo. The index sank 4.1 percent in the past six days on U.S. President Barack Obama’s bank proposal and growing concern China will take further steps to rein in growth. Companies on the gauge are priced at 1.6 times book value, near the highest level since September 2008.
“Asian markets are correcting over concerns the trajectory of growth is insufficient to justify some valuations,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne.
Hong Kong’s Hang Seng Index dipped 0.6 percent, as financial shares led the gauge into a so-called correction. The Shanghai Composite Index lost 1.1 percent, led by PetroChina Co. as crude oil fell. Japan’s Nikkei 225 Stock Average and Australia’s S&P/ASX 200 Index each retreated 0.7 percent.
Proprietary Trading
Futures on the Standard & Poor’s 500 Index climbed 1 percent after Obama received assurances from Senate leaders that Ben S. Bernanke will be confirmed for a second term as Federal Reserve chairman. The S&P 500 lost 2.2 percent on Jan. 22 as uncertainty over Bernanke’s confirmation weighed on lenders.
Obama last week called for limits on the size and trading activities of financial institutions as a way of preventing another financial crisis. The proposals, to be added to an overhaul of regulations being considered by Congress, would prohibit banks from running proprietary trading operations solely for their own profit. The rules would also prevent them sponsoring hedge funds and private-equity funds.
“The change to U.S. banking regulations will severely hamper the ability of many banks to meet forecast profit growth,” said Pengana’s Schroeders. “The fear in Asia is that similar type legislation could be enacted in the region as governments focus on how to fund the bill for the bailout of the global economy.”
Banking Regulations
An index of finance stocks on the MSCI Asia Pacific Index lost 1.1 percent, the most of 10 industry groups. In Sydney, Westpac Banking Corp. dropped 1.8 percent to A$24.92. QBE Insurance Group Ltd., Australia’s biggest property and casualty insurer, lost 0.7 percent to A$22.91 after Deutsche Bank AG cut its rating to “hold” from “buy.”
Woori Finance Holdings Co., South Korea’s third-biggest financial company, fell 4.6 percent to 14,500 won. The Public Fund Oversight Committee will discuss another block sale of Woori Finance shares when it meets on Jan. 27, people familiar with the plans said.
Bank of China lost 2.1 percent to HK$3.81. The nation’s third-largest lender by market value said its board will seek shareholder approval to issue six-year convertible bonds. Bank of Communications Ltd. fell 2.5 percent to HK$8.18.
“The size of Bank of China’s fundraising is huge,” Li Jun, a strategist at Central China Securities Holdings Co., said in Shanghai. “I’m afraid more big banks will follow suit in order to boost their capital adequacy ratio, which will be negative for the market.”
Hang Seng Correction
The Hang Seng Index has tumbled 10.2 percent since closing at a high of 22,943.98 on Nov. 16. The gauge has retreated 5.8 percent in 2010, more than three times as fast as the MSCI World Index of 23 developed markets as investors sold the city’s banks and energy producers on speculation China will rein in economic growth.
Today’s decline marked the first 10 percent retreat in the developed world since Greece’s Athens Stock Exchange General Index lost 30 percent starting in October.
“The market is correcting as China changes its policy focus,” said Alex Au, managing director of Richland Capital Management Ltd., which oversees $300 million of assets. “Risk appetite is decreasing.”
The MSCI Asia Pacific lost 3.5 percent last week on concern the pace of economic growth will prompt central banks from China to India to curb price increases. Chinese government reports on Jan. 21 showed the country’s fourth-quarter gross domestic product grew 10.7 percent, more than economists estimated, while inflation accelerated in December.
Oil, Copper
PetroChina, the nation’s top oil producer, sank 1 percent to 13.39 yuan in Shanghai. Santos Ltd., Australia’s third- biggest oil and gas producer, declined 1.2 percent to A$13.39. BHP lost 1.1 percent to A$41.25. Mitsubishi Corp., which trades commodities, dropped 1.1 percent to 2,267 yen in Tokyo.
Crude-oil futures fell 0.4 percent during Asian trade today, adding to last week’s 4.4 slump. Copper for three-month delivery dropped 0.7 percent to $7,340 a metric ton on the London Metal Exchange today.
Exporters fell amid investor concerns about the health of the global economy should Obama’s plan be approved. Honda dropped 1.7 percent to 3,175 yen. Infosys Technologies Ltd., India’s No. 2 software services exporter, declined 1.3 percent to 2,542.3 rupees.
Toyota Motor Corp., the world’s largest automaker, slumped 2.1 percent to 3,970 yen after saying global sales fell 13 percent in 2009 to 7.81 million units. The Sankei newspaper reported the figures earlier.
Rising Valuations
The steepest stock market rally since the 1930s pushed worldwide valuations to six-year highs, helped by more than $8 trillion in global spending to end the recession. The MSCI World Index trades for more than 28 times annual profit of its companies, near the highest level since 2002. The MSCI World dropped 3.8 percent last week, the most since October. It was little changed today.
“The sell-off that began last week has developed into a correction,” said Prasad Patkar, who helps manage about $1.6 billion at Platypus Asset Management in Sydney.
In Tokyo, Nissha Printing Co., which makes film for screens used in mobile phones, tumbled 7.6 percent to 4,090 yen after cutting its profit forecast. India’s Tech Mahindra Ltd. plunged 7.8 percent to 1,049.1 rupees after reporting a 23 percent decline in third-quarter earnings.
Daelim Industrial Co., a South Korean builder, fell 6.7 percent to 80,200 won after Mirae Asset Securities Co. cut its stock recommendation “hold” from “buy.”
To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net.
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