Asian stocks fell, with the regional benchmark index set for its third weekly loss in four, as speculation mounted that China will increase interest rates to curb inflation.
Industrial & Commercial Bank of China Ltd., the world's largest bank, slid 1.5 per cent in Hong Kong as inflation figures released yesterday added to concern the nation may soon increase interest rates. China Shenhua Energy, China's biggest coal producer, fell 4.4 per cent. Mitsubishi UFJ Financial Group, Japan's No. 1 lender by market value, lost 1.5 per cent after the Wall Street Journal said Asian lenders may face higher capital holding requirements. Mizuho Financial Group fell 3 per cent.
The MSCI Asia Pacific Index lost 1.2 per cent, the most in more than two weeks, to 132.68 in Tokyo, with more than three stocks falling for each that rose.
“The fear about further tightening measures by China is the main reason for the region's decline today,” said Tim Leung, who helps manage about $US1.5 billion at IG Investment in Hong Kong. “The inflation report gave people a reason to worry about further tightening policy. People are getting a bit nervous - they are seeing more evidence,” of the likelihood of an interest rate hike, he said.
The Asia Pacific measure is on course for a 1.1 per cent decline this week, its third weekly drop in four. The G20 leaders are meeting in Seoul today.
China inflation concern
Hong Kong's Hang Seng Index lost 1.1 per cent and China's Shanghai Composite Index dropped 2.3 per cent on concern the country will act to restrain its economy.
“There's talk of an interest rate hike over the weekend,” Wu Kan, a Shanghai-based fund manager at Dazhong Insurance. “It's quite possible given how inflation has accelerated.”
Japan's Nikkei 225 Stock Average slid 1.1 per cent, while Australia's S&P/ASX 200 Index declined 0.9 per cent.
South Korea's Kospi Index slipped 0.2 per cent after it earlier rose as much as 2.3 per cent following yesterday's 2.7 per cent drop in the last few minutes of trading. The plunge was spurred in part by computer-driven trades before the expiration of options contracts.
Futures on the Standard & Poor's 500 Index slid 0.7 per cent. The index declined 0.4 per cent yesterday after Cisco Systems and Walt Disney missed analyst estimates and concern over Europe's debt crisis intensified.
ICBC, Construction Bank
“Cisco's earnings report brings to light some of the costs associated with lower government spending,” said Anthony Danaher, president of California-based Guild Investment Management, which helps oversee $US125 million. “Austerity and fiscal conservatism in the developed world will bring pain.”
Industrial & Commercial Bank of China lost 1.5 per cent to HK$6.72 in Hong Kong and Construction Bank fell 1.4 per cent to HK$7.61. China Citic Bank slid 2.4 per cent to 5.69 yuan in Shanghai.
Consumer prices rose 4.4 per cent from a year earlier, boosted by food costs, a statistics bureau report showed in Beijing yesterday, more than the 4 per cent median forecast in a Bloomberg News survey of 28 economists.
Inflation and policy risks will cloud “earnings visibility” at China's banks in 2011, Alistair Scarff and Michael Li, analysts at Bank of America Merrill Lynch, wrote in a report. Also, Goldman Sachs Group recommended clients exit a bet that Hong Kong-listed companies in China will gain on concern the central bank will raise borrowing costs to tame inflation.
Commodities decline
China Shenhua dropped 4.5 per cent to HK$35.95. Aluminum Corp. of China Ltd., the listed unit of the nation's biggest producer of the lightweight metal, declined 2.8 per cent to HK$7.52. PetroChina, China's biggest oil producer, fell 1.1 per cent to HK$10.38.
Commodity prices declined on concern tightening policies may slow demand. Oil fell for the first time in three days, with the December futures contract losing as much as 1.2 per cent. December-delivery copper fell as much as 1.3 per cent to $3.9785 a pound on the Comex in New York.
“Investors are pricing in the increasing likelihood that the government will have to take more severe measures to check consumer price gains,” said Wang Zhihong, a strategist at Datong Securities Co. “Stocks will face more pressure in the short term.”
Japan banks
Banks were the biggest drag among the MSCI Asia Pacific Index's 10 industry groups today.
Mitsubishi UFJ Financial Group declined 1.5 per cent to 393 yen, reversing a gain of 5.8 per cent in the last two days. Sumitomo Mitsui Financial Group Inc., Japan's second-biggest bank by market value, dropped 1.7 per cent to 2,512 yen. Mizuho Financial Group, the No. 3, fell 3.1 per cent to 126 yen, the fifth-biggest contributor to the MSCI Asia Pacific Index's decline.
Japanese banks fell after the Wall Street Journal, citing a person close to the Financial Stability Board, reported Group of 20 ministers may not exempt the nation's lenders from stricter capital requirements.
Today's report contradicted one in the Financial Times on Nov. 10 citing people briefed on the G20 agenda that said the lenders might not have to comply with raised capital adequacy ratio requirements. A gauge of bank shares in the Topix Index rallied 6 per cent in the last two days.
The MSCI Asia Pacific Index increased 11 per cent this year to yesterday, compared with gains of 8.8 per cent by the S&P 500 and 6.9 per cent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 14.5 times estimated earnings on average, compared with 14.3 times for the S&P 500 and 12.2 times for the Stoxx 600.