Asian Stocks Drop as Dollar, Bond Risk Climb

By Shiyin Chen - Nov 25, 2011 2:01 PM GMT+0700

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Nov. 25 (Bloomberg) -- Adrian Mowat, JPMorgan Chase & Co.'s Hong Kong-based chief Asia and emerging-market strategist, talks about the outlook for the region's stock markets, China' economy and his investment strategy. Mowat speaks with John Dawson and Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

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Nov. 25 (Bloomberg) -- Nick Maroutsos, co-founder of Sydney-based Kapstream Capital, talks about Europe's sovereign debt crisis and its implications for global financial markets. Maroutsos also discusses the U.S. economy and the nation's budget deficit. He speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks (MXAP) declined, dragging the region’s benchmark index to a fourth straight weekly loss, while the dollar gained and bond risk increased on concern European leaders are struggling to contain a sovereign-debt crisis.

The MSCI Asia Pacific Index sank 0.9 percent as of 4 p.m. in Tokyo. Euro Stoxx 50 futures lost 0.4 percent. Standard & Poor’s 500 futures declined 0.3 percent, signaling the index may drop for a seventh day when U.S. markets resume trading after the Thanksgiving break. Japan’s benchmark bond yields climbed above 1 percent for the first time in three weeks. The dollar rose against 12 of its 16 major peers. The Markit iTraxx Asia index of debt-default risk headed toward a seven-week high.

German Chancellor Angela Merkel again ruled out joint euro- area borrowing and an expanded role for the European Central Bank in fighting the crisis. Italy prepares to sell bills today after the country’s two-year yield soared to a 14-year high yesterday. Portugal’s sovereign debt rating was cut to so-called junk by Fitch Ratings yesterday, while Hungary also lost its investment grade at Moody’s Investors Service.

“We need to see more action out of Europe before any sort of rebound happens,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Greece, Ireland, Portugal are becoming after-thoughts as the crisis is now unfolding at the footsteps of Italy, France and Germany. These are the larger countries and these would have the largest knock-on effects.”

Stocks Slump

MSCI’s Asia Pacific Index headed for a 4.4 percent weekly loss, the most since the five days ended Sept. 23. The gauge was poised for the lowest close since Oct. 5. Australia’s S&P/ASX 200 Index fell 1.5 percent, South Korea’s Kospi index declined 1 percent and Japan’s Nikkei 225 Stock Average slid 0.1 percent to close at the lowest level since March 2009.

Woodside Petroleum Ltd. (WPL) dropped 5.8 percent in Sydney after the oil and gas producer predicted a smaller-than-expected increase in output for 2012. HTC Corp. (2498), the smartphone maker that this week cut revenue forecasts, plunged 6.9 percent after Citigroup Inc. and Barclays Plc cut their ratings on the stock.

Taiwan’s Taiex index (TWSE) fell 1.2 percent, after earlier gaining as much as 1.3 percent. The island’s Financial Supervisory Commission called insurers to remind them that lending securities to short sellers may result in the reduction of value of their own stocks, said Lee Jih-Chu, a spokesman for the regulator. It didn’t ask insurers to stop lending, she said.

S&P 500 futures expiring in December signal U.S. stocks may extend a six-day, 7.6 percent slump that dragged the benchmark index down to the lowest level since Oct. 7. Trading will end at 1 p.m. today. Treasury 10-year notes fell for the first time this week, sending yields four basis points higher to 1.93 percent.

Exercising ‘Caution’

The dollar traded at $1.3316 per euro after earlier reaching $1.3298, a seven-week high. Joint euro bonds would immediately lead to a convergence of interest rates in the region, Merkel said yesterday at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

“We are likely to see investors continue to exercise caution in the market,” said Stan Shamu, a strategist at IG Markets in Melbourne. “There’s a feeling Germany is no longer immune to this whole situation and they may act further, which is obviously why everyone is calling for common euro bonds.”

Italy will auction 8 billion euros ($10.7 billion) of bills today, after the country’s two-year yield climbed 20 basis points yesterday to 7.32 percent, the highest since 1997.

South Korea’s won dropped 0.5 percent to 1,164.20 per dollar, a sixth day of losses. Taiwan’s currency declined as much as 0.2 percent after the island’s statistics bureau yesterday cut its economic growth forecasts for this year and next after gross domestic product rose in the third quarter at the slowest pace since 2009.

Japan’s Outlook

The yen slid against 15 of its 16 most actively traded counterparts. Japanese Finance Minister Jun Azumi said today he’s cautiously watching the foreign-exchange market and is prepared to act should he see moves driven by speculation. Consumer prices fell for the first time in four months, data showed today.

Japan’s 10-year yields increased three basis points to 1.025 percent after Standard & Poor’s said yesterday Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the nation’s public debt burden. Twenty-year yields climbed 5.5 basis points to 1.785 percent, the highest rate since Nov. 2, while 30-year yields added five basis points to 1.96 percent.

Bond Risk

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment rose, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increasing seven basis points to 236 basis points, according to Royal Bank of Scotland Group Plc prices. That’s set for the highest close since Oct. 6, according to data provider CMA.

Brent oil declined 0.3 percent to $107.44 a barrel, wiping out its gains for the week. Losses today were capped by concern violence in Saudi Arabia may destabilize the world’s biggest oil exporter. West Texas crude traded at $96.49 a barrel in New York, compared with the settlement price of $96.17 on Nov. 23. The January contract has dropped 1.2 percent this week.

Soybean futures dropped as much as 1.2 percent to $11.09 a bushel, the lowest level since Oct. 8 last year. Wheat slipped 0.6 percent to $5.91 a bushel, near the lowest since July 2010.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.