Asian Stock Rise Second Week as Central Banks Cut Rates

Asian stocks rose this week, with the regional benchmark index capping its fourth advance in five weeks, on anticipation central banks would ease monetary policy to spur growth. Shares fell July 6 as interest-rate cuts in China and Europe failed to convince investors that enough is being done to shore up the global economy.

Sino-Ocean Land Holdings Ltd., a Chinese developer, jumped 14 percent this week in Hong Kong after Credit Suisse Group AG said the nation’s interest rate cut benefits developers. Nintendo Co., a Japanese maker of game consoles that depends on Europe for a third of its sales, rose 3.2 percent in Osaka. Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipping line, tumbled 16 percent in Tokyo after announcing a share sale and cutting its profit forecast.

The MSCI Asia Pacific Index rose 1.2 percent to 118.59 this week, extending last week’s advance. The gauge posted a 3 percent gain for the first six months of 2012 as Greece’s debt crisis and slowing growth in China and the U.S. roiled markets. That compares with 8.3 percent advance by the Standard & Poor’s 500 Index and a 2.7 percent increase by the Stoxx Europe 600 Index.

“There is some room for the rally to last for the next couple of weeks,” Kelvin Tay, Singapore-based chief investment officer for the southern Asia-Pacific region at the wealth management unit of UBS AG, said in a Bloomberg TV interview. UBS manages about $1.5 trillion globally. “Sentiment has turned positive. The priority has shifted toward growth from inflation. The hands of the central banks are not so tied and they can look at perhaps easing monetary policy as they try to help stimulate economies.”

Relative Valuation

Stocks in the Asian benchmark are valued at 12 times estimated earnings on average, compared with 13 times for the S&P 500 and 10.7 times for the Stoxx 600.

Japan’s Nikkei 225 Stock Average climbed 0.2 percent this week. The quarterly Tankan index on sentiment among the nation’s manufacturers improved to minus 1 in June from minus 4 in March, the Bank of Japan said this week. A negative number means pessimists outnumber optimists.

Hong Kong’s Hang Seng Index advanced 1.9 percent this week, which was shortened by a holiday. China’s Shanghai Composite Index slipped 0.1 percent. Taiwan’s Taiex Index rose 1 percent, while South Korea’s Kospi Index gained 0.2 percent.

Australia’s S&P/ASX 200 advanced 1.5 percent after the Pacific country’s benchmark interest rate was kept unchanged at 3.5 percent.

Singapore’s Straits Times Index gained 3.5 percent this week, extending its advanced to eight days, the longest winning streak since April 2011. The last time the index rose for more than eight straight days was in January 2006.

CapitaLand Jumps

CapitaLand Ltd. jumped 10 percent this week, the most on the city state’s benchmark, on speculation Southeast Asia’s biggest developer will benefit from declining borrowing costs in China, which contributes about 22 percent of the company’s revenue. Golden Agri-Resources Ltd., the world’s second-biggest palm oil grower, climbed 7.5 percent as crude palm oil futures rose for a third week in Kuala Lumpur.

Speculation that central banks would further ease monetary policy after U.S. manufacturing unexpectedly shrank in June and unemployment in the 17-nation euro area reached the highest level on record.

Billabong International Ltd., a surfwear company that counts the Americas as its biggest market, jumped 8.8 percent to A$1.17 in Sydney. Nintendo rose 3.2 percent to 9,550 yen in Osaka. Komatsu Ltd., the second-biggest construction-equipment maker, rose 4.4 percent to 1,961 yen in Tokyo.

ECB Measures

The European Central Bank reduced its benchmark rate to a record low of 0.75 percent on June 5 and the People’s Bank of China cut borrowing costs for a second time in a month. Asian shares pared this week’s gains yesterday after interest-rate cuts in Europe and China failed to assure investors the moves will be enough to boost economic growth.

ECB President Mario Draghi said the cuts may have only a “muted” effect and downside risks to the economic outlook have materialized. The Bank of England raised the size of its asset-purchase program as the debt crisis in Europe hurts global growth. Last month, the Federal Reserve extended a program of replacing short-term bonds with longer-term debt.

Industrial & Commercial Bank of China Ltd., China’s biggest lender by market value, dropped 0.7 percent in Hong Kong as Citigroup Inc. said the rate cut in the mainland will hurt earnings of lenders by reducing net interest margins. China Construction Bank Corp., the second largest, 2.7 percent.

Developers Gain

While lenders declined, developers rose after Credit Suisse said the rate cut would benefits property companies in the near term. Half of the top 10 gains this week in the MSCI Asia Pacific Index were developers with business in China.

Sino-Ocean Land surged 14 percent in Hong Kong, while Poly (Hong Kong) Investments Ltd., a developer that gets almost all its revenue from China, increased 17 percent, the largest advance in the regional gauge.

Among stocks that fell, Kawasaki Kisen slumped 16 percent to 131 yen in Tokyo after announcing a 28.6 billion yen ($358 million) share sale and cutting its profit forecast for the year ending March 31 by 73 percent.

David Jones Ltd., Australia’s second-largest department store owner, dropped 5 percent to A$2.46 in Sydney. A U.K. private equity fund withdrew its A$1.65 billion ($1.69 billion) bid, the company said, causing shares to reverse most of its biggest gain in 17 years posted last week. Australia’s markets regulator said July 3 it is examining “potential issues regarding disclosure and trading in David Jones stock” after the offer from EB Private Equity collapsed.

Samsung Slumps

Samsung Electronics Co., the world’s largest maker of televisions and mobile phones, slumped 3.3 percent to 1.161 million won in Seoul after its second-quarter sales missed estimates.

“We are still reasonably cautious,” said Tim Riordan, who helps manage $200 million at Parker Asset Management Ltd., a hedge fund in Sydney. “All of these moves by central banks had been expected, so they were baked into the price. ECB rate cuts are getting to the point where each cut is met with diminishing returns.”

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