Asian Stocks Decline as Japan Enters Correction on Fed

Asian stocks fell for a second week, with the regional benchmark index capping the first monthly loss in seven months, amid concern the Federal Reserve will scale back its stimulus, causing interest rates to rise. Shares in Japan, the world’s best performing major market, entered a correction as the yen rose.

Sony Corp. (6758), a Japanese TV maker that gets 67 percent of its sales abroad, declined 2.9 percent for the week. Sun Hung Kai Properties Ltd. (16), Hong Kong’s biggest builder, dropped 5 percent on concern higher interest rates will hurt the property market. Korea Electric Power Corp. (015760) slid 9.9 percent in Seoul after South Korea’s government ordered the shutdown of two nuclear reactors. Langham Hospitality Investments Ltd. (1270) slumped 12 percent after the hotel operator debuted in Hong Kong on May 30.

The MSCI Asia Pacific Index fell 2.7 percent to 134.84 this week, capping a 5.1 percent plunge in May. Japan’s Topix index slumped 4.9 percent this week extending its loss from its May 22 high to 11 percent. A correction is defined as a drop of more than 10 percent from a recent peak.

“There’s ongoing concern about policy tightening overseas, and overall money flow has turned risk off,” said Isao Kubo, a Tokyo-based equity strategist at Nissay Asset Management Corp., which oversees about 6 trillion yen ($59 billion.) “That global environment brought into relief the overheating of Japanese shares. That’s why we saw a correction.”

Relative Value

The MSCI Asia Pacific Index has retreated 6.6 percent from the closing level on May 20, which was the highest since June 2008. Asia’s benchmark trades at 13.2 times average estimated earnings, compared with multiples of 14.8 for the Standard & Poor’s 500 (SPX) Index and 13.2 for the Europe 600 Index, according to data compiled by Bloomberg.

Japan’s Nikkei 225 Stock Average slumped 5.7 percent, its biggest weekly loss since the week ended March 18, 2011 in the aftermath of a record earthquake and tsunami and subsequent nuclear disaster. Hong Kong’s Hang Seng Index (HSI) declined 1 percent and China’s Shanghai Composite Index added 0.5 percent before the government is to report the nation’s manufacturing data today.

South Korea’s Kospi Index rose 1.4 percent. Australia’s S&P/ASX 200 Index dropped 1.1 percent. Singapore’s Straits Times Index slipped 2.4 percent. Taiwan’s Taiex Index advanced 0.6 percent.

Yen, Exporters

Japanese exporters fell as the yen traded near a four-week high against the dollar. The yen touched 100.47 per dollar on May 30, the highest since May 9. A stronger yen cuts the value of their overseas earnings when repatriated home. Sony dropped 2.9 percent to 2,049 yen. Toyota Motor Corp. (7203), the world’s biggest carmaker, slid 3.5 percent to 6,010 yen. Nissan Motor (7201) Co., a carmaker that generates 34 percent of its sales in North America, declined 3.5 percent to 1,115 yen.

Even after falling 11 percent from its May 22 high, the Topix is still up 32 percent this year. That’s more than twice the return of the Standard & Poor’s 500, in local currency terms. Stocks surged after the Bank of Japan pledged in April to reach 2 percent inflation within two years by doubling the monetary base with bond purchases.

Reuters on May 30 reported that Japan’s Government Pension Investment Fund is considering a change in strategy that would allow it to put more of its assets into stocks. The fund wants to take advantage of Japan’s best equity rally in decades and move away from the bond market’s volatility, Reuters said, citing people familiar with the matter.

Fed Policy

Fed Chairman Ben S. Bernanke said last week the central bank could reduce monetary stimulus if officials see signs of sustained improvement in growth. U.S. consumer confidence climbed in May to the highest level in more than five years, a Conference Board report showed on May 28. The index rose to 76.2, the strongest since February 2008.

“If we see a global tightening or retreat in quantitative easing, money will leave Hong Kong,” said Steven Leung, director of institutional sales at UOB-Kay Hian Holdings Ltd. in Hong Kong. “Interest rates in Hong Kong will follow and that would have a big impact. Finance and property sectors will be very sensitive to interest rates or liquidity flows.”

A gauge of property companies in the Topix has plunged more than 20 percent from an April 12 high as yields on the country’s government bonds jumped, boosting the cost of borrowing, amid concern people will rotate away from fixed income to equities.

Property Developers

Mitsubishi Estate Co. slid 4 percent this week to 2,547 in Tokyo. The company at one point in the week lost its place as Asia’s biggest property company by market value to Hong Kong’s Sun Hung Kai, which declined 5 percent to HK$103.20. Wharf Holdings Ltd. (4) sank 4.9 percent to HK$69.10 and Hang Lung Properties Ltd. (101) plunged 8 percent to HK$27.30.

Korea Electric Power, parent of nuclear operator Korea Hydro & Nuclear Power Co., slid 9.9 percent to 26,800 won. Analysts at Daishin Securities Co. and Shinyoung Securities Co. cut their share-price estimates to 40,000 won and 35,000 won respectively, citing prospects the reactor shutdowns would hurt operating profit.

Langham sank 12 percent to HK$4.39 this week after falling 9.2 percent on its trading debut May 30. The company is raising net proceeds of HK$4.08 billion in its initial public offering in which its shares were marketed at between HK$4.65 and HK$5.36 each.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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