Asia Stocks See Biggest Weekly Drop in Month Before Europe Meet

By Kana Nishizawa and Yoshiaki Nohara - Oct 22, 2011 6:39 AM GMT+0700

Asian stocks saw their biggest weekly decline in a month after Germany said there would be no quick fix to the European debt crisis ahead of a regional summit this weekend.

Esprit Holdings Ltd. (330), a clothier that gets most of its revenue in Europe, dropped 9.3 percent in Honk Kong this week. Rio Tinto Group, the world’s second-largest miner by sales, dropped 8.4 percent in Sydney as commodity prices tumbled. Olympus Corp. (7733), which is embroiled in a scandal over payments to advisers, plunged 40 percent, erasing $4.4 billion in market value for the maker of cameras and endoscopes.

The MSCI Asia Pacific Index fell 0.7 percent, its steepest weekly fall since the period ended Sept. 23, on concern European policy makers will struggle to reach a resolution at a summit this weekend. The Asian benchmark has tumbled about 16 percent this year amid concern Europe’s debt crisis will spread, cutting the value of shares on the index to about 11.8 times estimated earnings on average.

“There’s a lot of information and a lot of uncertainty whether this weekend’s meeting will come out with a definitive plan,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The market remains very vulnerable.”

Index Moves

Japan’s Nikkei 225 (NKY) Stock Average declined 0.8 percent, while South Korea’s Kospi Index rose 0.2 percent. Australia’s S&P/ASX 200 dropped 1.5 percent.

Hong Kong’s Hang Seng Index slid 2.6 percent this week after China’s economy grew last quarter at the slowest pace since 2009. The Shanghai Composite Index sank 4.7 percent. Bangkok’s SET Index lost 4.1 percent as the worst flooding in 50 years shut factories and disrupted supply chains.

Asian stocks declined after German Chancellor Angela Merkel said the planned Oct. 23 summit won’t provide a definitive solution to Europe’s crisis. Hurdles to a deal include resistance from bankers to a deeper restructuring of Greek debt as well as disagreements between Europe’s capitals over how to multiply the firepower of their bailout fund and recapitalize financial institutions.

‘Long-Term Work’

“These sovereign debts have built up over decades, so they won’t be ended with one summit,” Merkel told reporters in Berlin on Oct. 18. “This will require tough, long-term work.”

Esprit, which depends on Europe for 79 percent of its sales, slid 9.3 percent to HK$10.52 this week in Hong Kong. Billabong International Ltd. (BBG), a surfwear maker that gets about 70 percent of sales from the Americas and Europe, dropped 4.3 percent to A$3.54 in Sydney.

Stocks also fell this week amid signs the U.S. recovery is slowing. The Federal Reserve’s Beige Book survey showed companies reported more doubt about the economy.

“U.S. economic conditions don’t appear to be getting any better, and in fact there’s some risk it might get worse,” said Angus Gluskie, who manages more than $300 million at White Funds Management in Sydney. “That doesn’t give investors much comfort at all.”

Asian commodity producers dropped as the price of metals and oil plunged. Rio Tinto slumped 8.4 percent to 62.57 yen this week in Sydney. Jiangxi Copper Co., China’s No. 1 producer of the metal, declined 7.9 percent in Hong Kong. Mitsubishi Corp. (8058), Japan’s biggest trading company by market value, slid 5.3 percent in Tokyo.

Metals Tumble

The London Metal Exchange Index, a measure of six metals, tumbled 8.8 percent this week through Oct. 20, while crude oil for November delivery retreated 1.1 percent over the period.

Chinese developers dropped after a report the mainland recorded 9.1 percent growth last quarter, the slowest in two years.

Poly Real Estate Group Co., a mainland developer, tumbled 8.4 percent to 8.52 yuan, and Angang Steel Co., a mainland steel products maker, sank 6.6 percent in Shanghai. Anta Sports Products Ltd. (2020), China’s second-biggest footwear company, declined 21 percent to HK$6.42 in Hong Kong after saying sales growth may slow in the third quarter.

Olympus tumbled 40 percent to 1,231 yen this week in Tokyo, the worst performer on the MSCI Asia Pacific Index. Dismissed President Michael C. Woodford made public a PricewaterhouseCoopers report he commissioned that said the company had paid advisers $687 million in fees for its $2 billion acquisition of Gyrus Group. The fees were double the amount Chairman Tsuyoshi Kikukawa disclosed before admitting to the full sum.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net