Asian stocks drop on China tightening fears

Bloomberg/Singapore

An investor reacts in front of an electronic board showing stock information at a brokerage house in Taiyuan, Shanxi province yesterday. China’s key stock index ended down 2.9% yesterday, weighed by banking and commodity stocks

Asian stocks fell, with the regional benchmark index sliding the most in almost two months, as Chinese economic reports prompted speculation the country will do more to fight inflation and US earnings disappointed.

BHP Billiton, the world’s No1 mining company that counts China as its biggest market, dropped 1.9% as commodity prices slumped.

China Merchants Holdings International, which has interests in ports moving about a third of the country’s container traffic, dropped 4.1% in Hong Kong. James Hardie Industries SE, the biggest seller of home siding in the US, declined 2% in Sydney, set for its longest losing streak since July 2009.

The MSCI Asia Pacific Index fell 1.3% to 138.66 in Tokyo, with about seven stocks declining for every that rose. China reported economic growth accelerated to 9.8% in the fourth quarter as the inflation rate slowed to 4.6% in December from 5.1% in November.

"It’s fair to say that this data will add to pressure on China to tighten,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital, which manages about $93bn.

"The figures aren’t overly worrying, but with growth continuing along at a fairly solid pace and inflationary pressures still evident, it’s all consistent with further tightening.”

The Asia Pacific gauge yesterday closed at its highest level in 2-1/2 years after Apple and International Business Machines reported earnings that exceeded analysts’ estimates.

Hong Kong’s Hang Seng Index dropped 1.7%, its biggest intraday decline in a month, and the Shanghai Composite Index fell 2.9%. Japan’s Nikkei 225 Stock Average retreated 1.1%. South Korea’s Kospi Index slipped 0.4%, while Australia’s S&P/ASX 200 Index dropped 1.1%.

 "The market has had an increasingly positive view on the US recovery,” said Matt Riordan, who helps manage about $6bn in Sydney at Paradice Investment Management. "Then you get a situation like this, when things seem to be going backwards. For a sustainable recovery, you really need housing and employment coming back.”

China’s expansion exceeded the 9.4% median estimate in a Bloomberg News survey of 22 economists and compared with a 9.6% annual gain in the previous three months, a statistics bureau report showed. Citigroup and Credit Suisse say inflation may peak at as much as 6% in the first half.

 "If the economy keeps growing at the current pace, inflation will remain alarming,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group.

BHP Billiton, Australia’s No1 oil producer, dropped 1.9% to A$45.19 and Rio Tinto, the world’s third- largest mining company, slid 2.3% to A$85.57. Jiangxi Copper, China’s No1 producer of copper, fell 2.5% to HK$25.50 in Hong Kong, while Cnooc, China’s biggest offshore oil producer, declined 2% to HK$19.02.

 "We may see a decline in exporters as the yen strengthens, and commodity related shares may fall on lower oil prices,” Akino said.

OZ Minerals sank 3.4% to A$1.72 in Sydney after reporting that fourth-quarter copper output fell 31% because of declining grades. Copper output in the three months to December 31 was 25,185 tonnes, the Melbourne-based company said, compared with 36,497 tonnes a year earlier.

Also in Sydney, James Hardie declined 2% to A$6.29. China Merchants lost 4.1% to HK$33 in Hong Kong.

"It may be hard to find a good reason to buy,” said Mitsushige Akino, who oversees about $450mn in assets in Tokyo at Ichiyoshi Investment Management Co.

The MSCI Asia Pacific Index rose 2.1% this year to yesterday, compared with gains of 1.9% by the S&P 500 and 2.5% by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.4 times estimated earnings on average at the last close, compared with 13.4 times for the S&P 500 and 11.2 times for the Stoxx 600.