Asian Stocks Retreat as U.S. Lawmakers Fail to Agree Deal on Debt Ceiling

Asian stocks fell, led by banks and exporters, as U.S. lawmakers failed to reach an agreement to raise the federal debt limit, increasing the prospect of a default that may threaten the global recovery, and as Greece’s credit rating was cut by Moody’s Investors Service.

Toyota Motor Corp. (7203), the world’s biggest carmaker by market value, slid 1.4 percent in Tokyo, leading consumer discretionary stocks lower. Honda Motor Co., the Japanese automaker which receives 44 percent of its revenue from North America, declined 1.6 percent. Commonwealth Bank of Australia (CBA), the nation’s biggest lender by market value, slipped 1.9 percent in Sydney. China Railway Construction Corp. tumbled 6.7 percent in Hong Kong to its lowest level on record after two high-speed trains collided in China, killing at least 36 people.

“The ongoing saga of needing to raise the debt ceiling in the U.S. is likely to remain a concern for stock markets as the deadline heads closer with no apparent signs of agreement,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “If talks fail, we should expect a credit-rating downgrade and another turn downwards in the U.S. economy.”

The MSCI Asia Pacific Index lost 0.9 percent 137.81 as of 6:29 p.m. in Tokyo. About three stocks fell for each that gained on the gauge. The measure rose 2.5 percent last week, erasing the regional benchmark index’s loss for the year, as steps by European leaders toward easing the region’s sovereign debt crisis, including fresh aid for Greece, boosted the earnings outlook for Asia’s banks and exporters.

Asian Benchmarks Fall

Most stock market benchmarks in the region fell today. Japan’s Nikkei 225 Stock Average lost 0.8 percent while South Korea’s Kospi index declined 1 percent. Australia’s S&P/ASX 200 Index slipped 1.6 percent.

Hong Kong’s Hang Seng Index slumped 0.7 percent, and China’s Shanghai Composite index declined 3 percent, the biggest decline among regional benchmarks, along with the Shenzhen Composite Index, which dropped 3.8 percent.

Futures on the Standard & Poor’s 500 Index fell 0.9 percent today. House Speaker John Boehner told Republicans that there’s no agreement on a plan for raising the U.S. debt ceiling before a default threatened for Aug. 2. A Republican congressional official said Boehner, speaking by telephone to lawmakers, is reporting that discussions are continuing. The impasse has boosted the chance S&P Ratings Service will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.

Exporters Decline

Asian exporters to the U.S. declined on concern failure to reach an agreement on debt talks may damp the economic recovery and jeopardize their earnings prospects.

Toyota, which receives 28 percent of its sales from North America, slid 1.4 percent to 3,290 yen. Honda dropped 1.6 percent to 3,185 yen. Samsung Electronics Co., which counts America as its second-biggest market for revenue, declined 0.4 percent to 847,000 won in Seoul.

Asian banks also declined on concern credit rating agencies may lower their outlook for U.S. debt, further roiling credit markets. Both S&P and Moody’s Investors Service are weighing a downgrade of the U.S. credit rating.

The amount of U.S. Treasuries held in Japan was estimated at $912.4 billion at the end of May, the highest since at least 2000, according to U.S. Treasury data compiled by Bloomberg. China is the largest holder of U.S. debt, with $1.16 trillion at the end of May, the data show.

‘Mini Sell-Off’

Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest listed lender by market value, lost 2 percent to 399 yen. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s No. 2, fell 1.3 percent to 2,497 yen. Commonwealth Bank of Australia declined 1.9 percent to A$49.54 in Sydney.

“The outcome of U.S. debt talks was one of the big concerns for investors, so this will trigger a mini sell-off in stock markets,” said Prasad Patkar, who helps manage the equivalent of $1.7 billion at Sydney-based Platypus Asset Management Ltd. “Failure to reach a debt deal would jeopardize the U.S.’s credit rating, and this has the potential to cause a seizure in global credit markets.”

Greece’s Rating Cut

Stocks also fell as Moody’s Investors Service cut Greece’s sovereign credit rating by three steps to Ca from Caa1, saying the European Union’s financing package for the debt-laden nation implies “substantial economic losses” for private creditors.

Esprit Holdings Ltd., the clothing retailer which counts Europe as its biggest market, dropped 3.5 percent to HK$23.30 in Hong Kong. Cosco Pacific Ltd., which operates container facilities at Greece’s Piraeus port, slipped 0.3 percent to HK$13.10. Trend Micro Inc., the internet security software maker which receives 19 percent of its revenue from Europe, slid 2.1 percent to 2,521 yen in Tokyo.

The MSCI Asia Pacific Index rose 1 percent this year through July 22, compared with a gain of 7 percent by the S&P 500 and a drop of 1.4 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.8 times estimated earnings on average, compared with 13.5 times for the S&P 500 and 11.1 times for the Stoxx 600.

China Rail Crash

Chinese railway-related companies fell after at least 36 people died and 200 were injured when a high-speed train that broke down after being struck by lightning was rear-ended by another locomotive two days ago in China, according to the state-run Xinhua News Agency.

China Railway Construction sank 6.7 percent to HK$5.46, its lowest level since listing in Hong Kong in March 2008. China Railway Group Ltd. (601390), which builds railroads, plunged 6.7 percent to HK$3.05. CSR Corp., which makes locomotives, freight wagons and passenger carriages, tumbled 8.9 percent to 6.04 yuan in Shanghai.

The accident will “substantially undermine” people’s confidence in the country’s high-speed rail network and “significantly discourage” usage, Barclays Capital said.

Airline and expressway operators gained in China on speculation passengers will increase airplane and car travel following the rail crash.

China Eastern Airlines Corp. climbed 1.2 percent to 5.09 yuan in Shanghai. Air China Ltd. (601111) increased 3.6 percent to HK$8.08 in Hong Kong. China Southern Airlines Co. advanced 3.4 percent to HK$5.17. Shenzhen Expressway Co., which manages and operates highways and expressways in China, rose 2.9 percent to 4.90 yuan.

“We expect travelers to gradually turn to alternative transport means, including expressways,” Patrick Xu and Jon Windham, analysts at Barclays Capital, wrote in a report today.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.