Asian Stocks Drop, Led by Nikkei 225, as Overheating Seen

Asian stocks dropped, with the regional benchmark index heading for its biggest loss in two months. The Nikkei 225 Stock Average slid the most since May, while Chinese shares fell for the first time in three days.

Honda Motor Co., an automaker that gets 81 percent of its sales overseas, sank 3 percent in Tokyo as a stronger yen dimmed the outlook for exporters. GS Yuasa Corp., a supplier of lithium batteries to Boeing Co., slumped 4.5 percent after All Nippon Airways Co. grounded its fleet of Boeing Dreamliners. Agricultural Bank of China Ltd., the nation’s No. 3 lender, fell 2 percent in Hong Kong after Premier Wen Jiabao said China should “gradually” establish a property tax system.

The MSCI Asia Pacific Index slid 0.7 percent to 131.74 as of 7:02 p.m. Tokyo time, with more than two stocks falling for each that rose. The gauge rallied 11 percent from Nov. 14 through yesterday as Japanese shares surged on speculation Prime Minister Shinzo Abe will pursue more aggressive stimulus policies and reports showed China’s economy is recovering and .

“We’re seeing shares at an overbought level after such a strong rebound recently,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $126 billion. “The market just needs to consolidate before coming back. The fundamentals are looking better. It’s not going to be a deep correction, just some consolidation. Markets never go up in a straight line.”

Overheating Signs

The MSCI Asia Pacific Index’s 14-day relative strength index, an indicator of market momentum, reached 75 yesterday. A level above 70 is considered by some investors as a sign the shares have risen too far, too fast.

Shares on the Asian gauge traded at 14.2 times estimated earnings, compared with 13.3 for the Standard & Poor’s 500 Index and 12 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg News.

Japan’s Nikkei 225 dropped 2.6 percent, posting its biggest decline since May 18. The gauge retreated after yesterday climbing to its highest level since April 2010.

Readings for the 14-day RSI for both Japan’s benchmark index and broader Topix Index were at least 80 yesterday. The Topix’s RSI has been above 70 for 19 days, the longest streak since 1989.

“There should be some short-term selling amid a feeling that shares are overheating and the yen has stopped sliding,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.

China’s Shanghai Composite Index fell 0.7 percent as a report showed the nation’s foreign direct investment declined for the first full year since 2009 as economic growth slowed and manufacturers relocated to markets with cheaper labor.

Hong Kong

Hong Kong’s Hang Seng Index lost 0.1 percent, paring losses after Chief Executive Leung Chun-ying said the government would consider curbing demand from overseas for properties if the needs of locals aren’t met.

Taiwan’s Taiex Index declined 0.8 percent. South Korea’s Kospi Index dropped 0.3 percent and Australia’s S&P/ASX 200 Index gained 0.5 percent.

Futures on the Standard & Poor’s 500 Index dropped 0.3 percent today. The gauge yesterday added 0.1 percent as a rally in retail and transportation companies overshadowed concern about discussions on raising the U.S. government’s debt ceiling.

Japanese shares fell even as a report showed the nation’s machinery orders, an indicator of capital spending, rose 3.9 percent in November from October. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.3 percent increase.

Exporters Drop

Exporters declined after the yen rose for a second day, extending its rebound from the lowest level against the dollar in more than two years. A stronger yen reduces the overseas earnings of the nation’s carmakers and electronics manufacturers when repatriated.

Honda dropped 3 percent to 3,280 yen. Toyota Motor Corp., the world’s biggest carmaker, decreased 2.6 percent to 4,155 yen. Canon Inc., the world’s largest camera maker, sank 4.1 percent to 3,250 yen.

Brother Industries Ltd. dropped 5.7 percent to 909 yen as Credit Suisse cut its rating for the Japanese office-equipment maker to underperform from neutral.

GS Yuasa decreased 4.5 percent to 321 yen, while All Nippon Airways slid 1.6 percent to 182 yen. The carrier’s entire fleet of Boeing 787s was grounded after pilots of one of the jets made an emergency landing after receiving a battery-fault warning and smelling smoke, Ryosei Nomura, a spokesman for ANA, said.

Property Tax

Chinese lenders and developers declined after Premier Wen said China should “gradually” establish a property tax system that covers trading and ownership. The comments were made during a visit to the finance ministry yesterday, according to a statement posted on the central government’s website.

Agricultural Bank of China slipped 2 percent to HK$3.95. Bank of China Ltd., the nation’s fourth-largest lender, lost 1.1 percent to HK$3.67. China Overseas Land & Investment Ltd., the biggest mainland homebuilder traded in Hong Kong, fell 0.8 percent to HK$24.80.

Among stocks that gained, Boral Ltd., an Australian building-materials supplier, jumped 10 percent to A$4.80 after saying it will cut 1,000 jobs, 7 percent of its workforce, to reduce costs amid a slowdown in the construction industry.

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