China Stocks Lead Asian Shares Lower as Industrial Profits Drop

Asian stocks outside of Japan dropped, led by the biggest loss in a month for Chinese shares as a decline in industrial companies’ profits signaled a deepening economic slowdown. The Topix index climbed by the most in a week amid light trading.

The MSCI Asia Pacific Index slipped less than 0.1 percent to 131.14 as of 4:01 p.m. in Hong Kong, erasing gains of as much as 0.3 percent earlier. Markets in Australia and New Zealand are shut for holidays. The Asian gauge is poised to drop 4.9 percent this year for its first back-to-back losses since 2002 amid decelerating Chinese growth and a rout in commodities. The Shanghai Composite Index slid 2.6 percent Monday and mainland shares in Hong Kong slid on concern over slowing economic growth and corruption investigations.

“Investors don’t like declining industrial profits and they don’t like ongoing corruption investigations in China,” said Andrew Clarke, director of trading at Mirabaud Asia Ltd. in Hong Kong. “There’s plenty of reasons to lighten their load ahead of the new year and there’s no reason to open any new positions. That’s going to exaggerate the down swing in the market.”

China’s Shanghai Composite Index tumbled the most since Nov. 27. Slumping industrial profits are the latest sign China’s government is struggling to reduce overcapacity and halt declines in producer prices. President Xi Jinping’s anti-corruption campaign has ensnared more than 100,000 officials, the latest being Chang Xiaobing, chairman of China Telecom Corp.

China Telecom fell 1.3 percent in Hong Kong as the company’s chairman is suspected of severe disciplinary violations, language used by the government that often refers to corruption investigations. Cnooc Ltd. fell 1.4 percent, pacing losses among energy producers as oil futures retreated after capping their biggest weekly advance in four months last week. J Front Retailing Co. dropped 4.9 percent in Tokyo after Nomura Holdings Inc. lowered its price target for the Japanese retailer.

The Hang Seng China Enterprises Index of mainland stocks in Hong Kong tumbled 1.7 percent, while the city’s benchmark Hang Seng Index dropped 1 percent, with trading volume 42 percent below the 30-day average. Taiwan’s Taiex index and Singapore’s Straits Times Index both lost 0.1 percent. South Korea’s Kospi index slipped 1.3 percent.

The MSCI Asia Pacific Index is set for a 0.5 percent drop in December, and is up 5.9 percent this quarter. The Federal Reserve raised U.S. interest rates this month for the first time in almost a decade and signaled a gradual pace for future increases.

“For 2016, the outlook should become less hazy and investors should enjoy greater clarity with regards to the pace of Fed rate hikes and hopefully the Chinese economy will also show signs of stability which will benefit commodity prices and emerging economies,” Vasu Menon, vice president of wealth management at Oversea-Chinese Banking Corp. in Singapore, said by email. “Equity markets are likely to remain volatile, at least into the first half of 2016, as markets come to terms with the direction of U.S. monetary policy and the economic outlook for China.”

Japan’s Topix index advanced 0.9 percent on Monday, with shippers and paper-product makers leading gains. The nation’s industrial output fell 1 percent in November from a month earlier, according to a report published before the market opened. The drop was twice as big as economists had predicted. Retail sales declined 2.5 percent month-on-month.

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