Asian Stocks Drop as ECB Damps Bond-Buying Speculation, Slowing GDP Growth

By Kana Nishizawa - Dec 9, 2011 10:59 AM GMT+0700

Asian stocks (MXAPJ) fell for a second day amid economic reports indicating Europe’s debt crisis is contributing to slower growth in Japan, South Korea and China.

Nippon Sheet Glass Co., which counts Europe as its biggest market, fell 2 percent in Tokyo after the European Central Bank damped speculation it would step up debt purchases. Renhe Commercial Holdings Co., a Chinese developer of underground shopping centers, sank 9.6 percent after a report that a customer defaulted on 2 billion yuan ($314 million) in debts. BHP Billiton Ltd. (BHP), the largest global mining company, retreated 3.6 percent in Sydney after commodity prices declined.

The MSCI Asia Pacific Index (MXAP) slid 2.1 percent to 114.82 as of 12:43 p.m. in Tokyo, the biggest decline in a month. The gauge is headed for a 2.4 percent decline for the week after gaining 8 percent last week.

“The ECB Chief saying he didn’t hint at more bond purchases was a disappointment for the market, and it also gave the market a reason to lock in profits after markets gained last week,” said Takashi Aoki, who helps manage 120 billion yen at Tokyo-based Mizuho Asset Management Co. “China’s inflation data signals there will be more easing ahead, which is positive for markets” over the long term, he said.

All 10 industry groups on the Asia-Pacific measure dropped, with about six stocks falling for each that rose. The gauge’s advance last week was the largest in four years, after China reduced curbs on lending and the Federal Reserve led central banks in cutting funding costs for European lenders.

Regional Indexes

Japan’s Nikkei 225 Stock Average (NKY) sank 1.4 percent after the nation’s economy grew less than the government’s initial estimate last quarter. Australia’s S&P/ASX 200 index fell 1.3 percent, while South Korea’s Kospi Index (KOSPI) declined 1.4 percent. Hong Kong’s Hang Seng Index fell 1.9 percent, while China’s Shanghai Composite Index slid 0.5 percent.

The MSCI Asia Pacific Index declined 15 percent this year through yesterday, compared with a drop of 1.9 percent by the S&P 500 and a 14 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.9 times estimated earnings on average, compared with 12.5 times for the S&P 500 and 10.4 times for the Stoxx 600.

Nippon Sheet Glass fell 2 percent to 149 yen in Tokyo. HSBC Holdings Plc (5), Europe’s biggest lender by market value, retreated 3 percent to HK$60.50 in Hong Kong.

Futures on the Standard & Poor’s 500 Index (SPXL1) rose 0.2 percent today. The S&P 500 Index of stocks slid 2.1 percent in New York yesterday, snapping a three-day rally, after European Central Bank President Mario Draghi said he didn’t signal stepping up government bond purchases.

Draghi Denial

Draghi’s comments roiled the U.S. market. He kept the onus on European leaders, who are meeting in Brussels, to solve the debt crisis by repeating his call for a “fiscal compact” and denying he had hinted the ECB would automatically support such an initiative with more government bond purchases.

ECB policy makers meeting in Frankfurt yesterday reduced the benchmark interest rate by a quarter percentage point to 1 percent, matching a record low. They also loosened collateral rules so that banks can borrow more from the ECB and announced two unlimited three-year loans. The measures “should ensure enhanced access of the banking sector to liquidity,” Draghi told reporters.

China’s consumer prices rose 4.2 percent in November from a year earlier, slowing from a 5.5 percent gain in the previous month, the National Bureau of Statistics said. The median estimate of economists surveyed by Bloomberg was for a 4.5 percent increase.

“Not That Easy”

“The market has been swinging between optimism and pessimism,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees the equivalent of $68 billion. “Investors had bought back shares on optimism the European crisis would be solved somehow, but now it’s confirmed the reality is not that easy.”

BHP fell 3.6 percent to A$35.66 in Sydney. Cnooc Ltd (883), China’s biggest offshore oil producer, slid 3.4 percent to HK$14.80 in Hong Kong, while Jiangxi Copper Co. (358), the biggest Chinese producer of the metal, retreated 5.2 percent to HK$17.98.

Crude oil prices for January delivery sank 2.1 percent to $98.34 a barrel in New York yesterday, while the London Metal Exchange Index of prices for six metals including copper and aluminum slid 1.1 percent.

Renhe tumbled 9.6 percent to 94 Hong Kong cents, the biggest drop in the MSCI Asia Pacific Index, and C C Land Holdings Ltd. (1224) dropped 8.7 percent to HK$1.58 in Hong Kong. C C’s Chairman Zhang Songqiao bought properties from Renhe and defaulted on 2 billion yuan of payment linked to the purchases, Hong Kong Economic Journal newspaper reported, citing unidentified people. The shares pared their losses after Eva Chan, C C Land’s Hong Kong-based spokeswoman, denied the report.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

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