Asian Stocks Fall as Japan Reverses Gain After Abe Speech

Asian stocks fell, led by Japanese equities, after Prime Minister Shinzo Abe failed to impress investors in a speech outlining his growth strategy. Shares dropped across the region amid concern the Federal Reserve will scale back stimulus as the U.S. economy improves.

Japan’s Topix index slid 3.2 percent, reversing a gain of 1.2 percent, after Abe’s speech in Tokyo. Westpac Banking Corp. (WBC), Australia’s No. 2 lender by market value, fell 2.6 percent, pacing declines among financial shares after the nation’s economy grew less than expected. GCL-Poly Energy Holdings Ltd. (3800), the world’s No. 1 maker of polysilicon used in solar panels, rose 6.1 percent in Hong Kong after the European Union imposed smaller-than-expected tariffs on panels from China.

The MSCI Asia Pacific Index slid 1.8 percent to 132.26 as of 7:42 p.m. in Tokyo, heading for the lowest close since Feb. 5. Four stocks fell for each that rose and all 10 industry groups on the gauge dropped. The measure is down 8.5 percent from this year’s high on May 20.

“Shares are being sold because Abe’s plan didn’t have any surprises that meet overblown expectations in the market, while it points in the right direction,” said Takahiro Nakano, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value. “The Fed has started leveling the ground toward scaling back quantitative easing. The market dynamics are changing after rising on monetary policy.”

The MSCI Asia Pacific Index gained 4.1 percent this year through yesterday. The measure yesterday traded for 13.1 times average estimated earnings, compared with 14.8 for the Standard & Poor’s 500 Index and 13.2 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Regional Gauges

The Topix is down about 15 percent from an almost five-year high on May 22. It is still up 27 percent this year, making it the best-performing developed market in local currency terms, on optimism the nation can emerge from 15 years of deflation.

Australia’s S&P/ASX 200 Index (AS51) slumped 1.3 percent as a report showed the economy grew 0.6 percent last quarter from the previous three months, below the 0.7 percent median estimate of economists surveyed by Bloomberg. New Zealand’s NZX 50 Index slipped 0.5 percent and Singapore’s Straits Times Index fell 1.5 percent.

South Korea’s Kospi index dropped 1.5 percent and Taiwan’s Taiex Index shed 0.1 percent. Hong Kong’s Hang Seng Index declined 1 percent and China’s Shanghai Composite Index lost 0.1 percent.

Growth Plan

A gauge of consumer discretionary companies in the Asia-Pacific index has led gains this year as Japanese shares have rallied on the back of a weaker yen and the promise of policies to end deflation. Energy companies recorded the biggest declines amid concern that China’s demand for fuel will decline as economic growth slows.

In Japan, Abe pledged a legislative campaign to loosen rules on businesses ranging from non-prescription drugs to construction.

Laws won’t be enacted until autumn at the earliest, which means he’s putting off taking on vested interests until after next month’s election for the upper house of parliament. The growth strategy, which is to be detailed next week, is the “third arrow” of Abe’s economic revival plan to accompany fiscal and monetary stimulus.

“We’re going to have to reduce our expectations for Abenomics,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd., which has the equivalent of $325 billion in assets. “The initiatives are too small. The direction is right, but the comments are all long-term. It looks like things are going to move too slowly.”

Exporters Slide

Japanese exporters dropped as the yen gained against 15 of its 16 major counterparts following Abe’s speech. Toyota Motor Corp., the world’s biggest carmaker, dropped 3.4 percent to 5,730 yen and TV maker Sony Corp. (6758) slid 5 percent to 1,908 yen.

Futures on the S&P 500 declined 0.5 percent today after the gauge dropped 0.6 percent yesterday in New York. The S&P 500 has alternated between gains and losses for the past seven sessions as Fed policy makers continue to debate when to begin reducing monetary stimulus.

Goldman Sachs Group Inc. economist Jan Hatzius and Joseph Lavorgna at Deutsche Bank AG predicted the Fed may begin to taper bond purchases beginning in September. The U.S. central bank is buying $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing strategy.

Australian banks fell. Westpac declined 2.6 percent to A$28.19. Commonwealth Bank of Australia, Australia’s biggest lender by market value, fell 1.3 percent to A$66.25.

Among stocks that gained, GCL-Poly Energy rose 6.1 percent to HK$1.92 in Hong Kong after Europe decided to impose tariffs on solar panels from China, with an initial rate of 11.8 percent The rate comes as a relief to Chinese producers that were anticipating steeper penalties, said Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York.

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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