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Japanese Stock Futures, Australian Shares Drop on Europe Concern

Japanese stock futures and Australian equities fell, tracking a slump in U.S. shares, amid concern that a divided parliament in Italy may reignite Europe’s debt crisis.

American Depositary Receipts of Sony Corp., which gets two- thirds of its sales offshore, fell 5.2 percent after the yen rose as Italy’s election renewed the traditional refuge appeal of the Japanese currency, weakening the earnings outlook for exporters. Transfield Services Ltd. declined 11 percent in Sydney after the engineering and maintenance company reported a first-half loss. QBE Insurance Group Ltd. (QBE) slumped 6.1 percent as Australia’s biggest insurer said profit missed forecasts.

Futures on Japan’s Nikkei 225 Stock Average (NKY) expiring next month closed at 11,185 in Chicago yesterday, down from 11,650 at the close in Osaka, Japan. They were bid in the pre-market at 11,330 in Osaka at 8:05 a.m. local time. Australia’s S&P/ASX 200 Index (AS51) dropped 1.2 percent and New Zealand’s NZX 50 Index fell 0.3 percent. Standard & Poor’s 500 Index futures were little changed.

“Uncertainty about the Italian election result has sparked fears that they may abandon their austerity drive, possibly sparking another bout of volatility in Europe,” said Matthew Sherwood, head of investment market research in Sydney at Perpetual Investments, which manages about $25 billion. This may “make governing and implementing much-needed economic reforms almost impossible.”

Hung Parliament

Italy’s election may end Prime Minister Mario Monti’s government. The country may be left with a hung parliament as partial results suggested former Prime Minister Silvio Berlusconi may have built a blocking minority in the Senate. Prime ministers require control of both houses of parliament.

The MSCI Asia Pacific Index, the benchmark regional equities gauge, traded yesterday at 14.8 times average estimated earnings compared with 13.5 for the Standard & Poor’s 500 Index (SPX) and 12.4 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

The MSCI Asia Pacific index gained 10 percent from the start of November through yesterday as Japanese shares rallied on speculation a new government led by Prime Minister Shinzo Abe will press for more stimulus to beat deflation.

Japan’s currency dropped 0.4 percent to 120.42 per euro as of 7:16 a.m. in Tokyo after climbing 2.7 percent yesterday. The yen fell 0.3 percent to 92.09 per dollar following a 1.7 percent jump yesterday. A higher yen reduces the value of overseas earnings for Japanese exporters when repatriated.

The S&P 500 slumped 1.8 percent yesterday, the most since Nov. 7, to close at the lowest in more than a month.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. dropped 1.4 percent to 92.86 in New York yesterday.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

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

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