Global Stock Rout Engulfs Asia as U.S. Debt Cut, China CPI Add to Concerns

The global equity market rout that has erased about $7.8 trillion from stocks worldwide over the past two weeks eased today in Asian trading amid speculation the U.S. will announce measures to support the market and as state- run funds in South Korea and Taiwan bought shares.

The declines drove benchmark indexes in the region’s six biggest markets toward retreats of 20 percent from recent highs after Standard & Poor’s cut the U.S. credit rating. Futures on the S&P 500 Index swung between gains and losses today after the gauge fell the most since December 2008 yesterday. Britain’s FTSE 100 Index slumped as U.K. Prime Minister David Cameron cut short a vacation to deal with rioting in London. Hong Kong’s Hang Seng Index (HSI) fell 23 percent from a November high after China reported its inflation rate accelerated.

“Fear has taken over,” said Paul Xiradis, who manages about $12 billion in assets as chief executive officer of Ausbil Dexia Ltd. in Sydney. “It’s like a rapid fire burning away the market, but like all things it’s going to exhaust itself eventually. There are obviously still concerns about what’s happening in the U.S., Europe and China, but it appears to me we’re seeing all the classic signs of a blowout or a climax.”

The MSCI Asia Pacific Index, which last week entered a so- called correction after falling more than 10 percent from its May peak, pared a loss of as much as 5.5 percent today. It was down 1.9 percent at 120.59 as of 7:38 p.m. in Tokyo. More than four times as many stocks fell as advanced on the gauge.

The MSCI Asia Pacific Index swung 5.7 points in intraday trading, the second-biggest move since November 2008.

Taiwan, Korea

All industry groups tracked by the measure dropped today. The gauge trimmed its losses after governments in Taiwan and South Korea acted to stem stock declines, and amid speculation the U.S. Federal Reserve will announce measures to support markets after a scheduled meeting today.

Taiwan’s benchmark index fell 0.8 percent, narrowing earlier declines after Philip Yang, a Cabinet spokesman, said the government bought stocks yesterday and this morning through four funds it controls.

Korea Teachers Pension, South Korea’s second-largest public pension fund, said it bought the nation’s stocks during recent market selloffs, and plans to buy more if prices fall further. The nation’s benchmark Kospi Index fell 3.6 percent, paring a loss of as much as 9.9 percent earlier.

Federal Reserve officials may strengthen their commitment to record monetary stimulus as soon as today after a faltering economic recovery and a U.S. credit-rating downgrade sparked a rout in global stocks. By a 52 percent-to-48 percent margin, respondents in a Bloomberg News survey said the Fed would ease policy this year through monetary tools or statement language.

‘Circuit Breaker Needed’

“You’ve needed a circuit breaker after the freefall we’ve experienced over the last few days, and it’s likely to come in the form of government intervention,” said Jason Teh, who helps manage about $3 billion at Investors Mutual Ltd. in Sydney. “At the end of the day, stocks are companies, and companies are worth something, and it gets to a level where governments intervene and stocks begin to rally.”

Standard & Poor’s Ratings Services yesterday lowered credit ratings on debt issued by U.S.-backed mortgage lenders including Fannie Mae and Freddie Mac, citing its own Aug. 5 downgrade of the federal government’s AAA status.

Sony Corp. (6758), which earns almost half its revenue in the U.S. and Europe, fell 1.1 percent in Tokyo. Toyota Motor Corp., the world’s largest carmaker, retreated 1.9 percent. Samsung Electronics Co., South Korea’s No. 1 exporter of consumer electronics, fell 4.7 percent in Seoul. HSBC Holdings Plc, the U.K.-based lender that made a fifth of its revenue in North America last year, sank 7.3 percent in Hong Kong.

Nikkei, Hang Seng

STX Pan Ocean Co., South Korea’s biggest bulk carrier, tumbled 14 percent in Seoul. Elpida Memory Inc., the Japanese maker of memory chips fell 9.2 percent in Tokyo after swinging to a loss for the three months ended June.

Japan’s Nikkei 225 (NKY) Stock Average fell 1.7 percent and the broader Topix Index slipped 1.6 percent to 770.39 after spending much of the day below the level of its lowest close in the aftermath of the country’s March 11 earthquake.

Hong Kong’s Hang Seng Index lost 5.7 percent, taking its drop from a Nov. 8 peak to 23 percent as China reported its inflation rate accelerated to the fastest pace in three years in July, restraining the government from easing monetary policy as risks to the global economy mount.

Australia’s S&P/ASX 200 Index rallied late in the day to advance 1.2 percent as the nation’s banks reversed losses. Yesterday, the gauge slipped below the 4,000 level that marks a 20 percent retreat from its April 2010 high. Interbank cash-rate futures indicate the Reserve Bank of Australia’s key rate will fall to 3.33 percent by December from 4.75 percent.

Export-Led Economy

Australian gauges of funding costs are the lowest in more than a year, giving lenders scope to cut home-loan rates independently of the central bank as competition intensifies and demand for credit stalls. The rate banks pay to borrow from each other for six months dropped to 4.50 percent yesterday, down from this year’s high of 5.22 percent on May 9.

New Zealand’s NZX 50 Index declined 2.8 percent, even as the nation’s Finance Minister Bill English said the country is well positioned to withstand turbulence in global financial markets because its export-led economy is linked to Asian nations driving world growth.

Equity indexes in Australia, Hong Kong and Shanghai have all registered falls in excess of 20 percent from their peaks, fulfilling the conditions of a so-called bear market, on concern the global economy is slowing and the U.S. may enter a recession. Indexes in Japan entered a bear market amid market plunges following the March earthquake and have yet to exit, while those in South Korea and India are less than 1 percent from passing the threshold.

Estimated Earnings

The Asia-Pacific index’s earlier declines saw it temporarily erase all the gains since U.S. Federal Reserve Chairman Ben S. Bernanke announced in August 2010 that the central bank would add further stimulus to the world’s biggest economy through a program of asset purchases, also known as quantitative easing, or QE2.

The MSCI Asia Pacific Index lost 11 percent this year through yesterday, compared with drops of 11 percent by the S&P 500 and 17 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 12.3 times estimated earnings on average, compared with 11.2 times for the S&P 500 and 9.3 times for the Stoxx 600.

Among the companies that rose on the Asia-Pacific index today was Gree Inc., operator of a Japanese social-networking website. It advanced 9 percent after saying full-year net income will rise to as much as 28 billion yen, from 18.2 billion yen. Separately, the stock was raised to “overweight” from “neutral” at JPMorgan Chase & Co.

NAB, Billabong

National Australia Bank Ltd., the country’s biggest business lender, gained 2.9 percent after falling as much as 6.1 percent in Sydney after saying third-quarter profit rose 27 percent. Billabong International Ltd. (BBG), the world’s biggest surfwear maker that gets almost half its sales from the Americas, gained 1.2 percent in Sydney, reversing a plunge of as much as 7.5 percent earlier.

BHP Billiton Ltd. (BHP), the world’s No. 1 mining company, rose 1.2 percent, erasing a loss of as much 4.9 percent. Jiangxi Copper Ltd., China’s biggest producer of the metal, pared its decline to 4.4 percent from 8.6 percent earlier.

“It’s encouraging to see some kind of bottom in trading of Asian equities today,” said Stephen Corry, the Hong Kong-based Asia head of investment strategy for LGT Group, which oversees the equivalent of about $114 billion. “It’s an indication that we may have reached a point where selling over the last few weeks is beginning to exhaust itself.”

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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

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