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Recovery Fears Weigh on Asian Markets

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

Hello to our viewers all over China.

You're watching "Asia Market Daily", co-produced by CCTV Business Channel and CNBC, first in business worldwide.

I am Saijal Patel and here are the top stories across Asia today.

Stocks in Asia skidded in Wednesday trade as investors shunned risky positions as the second quarter winds down.

Banks' funding-conditions in Europe also weighed on shares.

In Japan the benchmark Nikkei 225 closed 2 percent lower.

In corporate news, Sumitomo Mitsui Financial Group steps-up its efforts to expand overseas, by agreeing to buy a 4.5 percent stake in Indian lender Kotak Mahindra Bank for $296 million.

Meantime, South Korea's KOSPI finished down 0.6%, driven by falls in exporters and banks such as Hynix Semiconductor and Shinhan Financial.

In Australia, the S&P ASX 200 was off by 1 percent.

Talk that the Australian government is set to water-down a hefty new mining tax failed to help the resources stocks. We'll hear what the miners have to say, later in the show.

Chinese stocks extended their 4-percent slide from Tuesday to a new 14-month low, with institutional players freeing up their portfolios to make room for the upcoming Agricultural Bank of China listing.

Wealth manager Puru Saxena says he expects long term prospects to remain positive, despite the lows.

(SOT) Puru Saxena, Chief Executive, Puru Saxena Wealth Management:

"Everyday if you look at the South China Morning Post here, which is the national newspaper, two or three whole pages are full of ads for new IPOs, and clearly this oversupply is weighing down on the market. I think the Chinese market has broken up to a fresh low yesterday, so I suspect that it's going to stay weak for a while and when and how much, again, I haven't got a clue, but if you are a long term investor, I'd be a buyer of Chinese equities because I'm convinced that the Chinese economy is one of the healthier ones in the world today, and the equities in that part of the world are going to benefit."

Standard Chartered also confirmed today that it will take up the role of cornerstone investor in Ag Bank, by investing 500 million in its Hong Kong portion.

With the jury still out on whether the rural lender will prove to be a good investment, analysts like Alex Wong of Ample Capital say market performance will help determine upcoming subscriptions.

(SOT) Alex Wong, Director - Asset Management, Ample Capital:

"The market has been extremely volatile over the last two sections. So I think the response actually depends lots on the market situation. In the meantime, I think generally people are more confident in subscribing to the share because actually Hong Kong investors quite like mainland financial stocks."

Ahead of its listing, Ag Bank has sought to ease investor concerns over its high cost base by outlining key financial steps.

It says it expects its cost-to-income ratio to fall by 5 to 8 percentage points after its IPO, and that will in turn help profits.

Broadly speaking, Asian stocks have slipped nearly 10 percent in the past three months.

That brings them on-course for their worst quarterly performance since the end of 2008, when global investors fled to safety after the collapse of Lehman Brothers.

Saxena offers his investment strategy for the next 12 months.

(SOT) Puru Saxena, Chief Executive, Puru Saxena Wealth Management:

"We also suspect that countries like China and Vietnam are now extremely attractive because they haven't done much over the last 12 months so these are some of our top investment destinations for the next 12 months."

Along with the markets sell-off, commodities have also tumbled to 10-month lows... with gold being the exception.

Risk aversion has turned out to be a good thing for the metal... as investors piled on in a flight to safety.

With July and August known to be a traditionally weak period for physical demand, analysts say that may cap potential gains for the metal.

Mining majors in Australia having a lackluster day, with Fortescue Metals the hardest hit, down 4.4 percent.

Lawmakers are staying quiet on the issue of a controversial mining tax proposal, amid talk that a compromise could be brokered as soon as today.

Local press reports say Resources Minister Martin Ferguson and Treasurer Wayne Swan are working on a deal to sharply reduce impact on existing projects.

Some miners have been especially vocal in urging Julia Gillard's new government for a resolution. Fortescue chief Andrew Forrest claimed he had reached certain concessions with former prime minister Kevin Rudd, prior to his sudden exit.

Bruce McFadzean of Catalpa Resources also says the government needs to move quickly.

(SOT) Bruce McFadzean, Managing Director, Catalpa Resources

"My view is that "Twiggy" (Andrew Forrest) has sort of been driving a fair bit of this, probably with BHP and Rio as well, but we need to see how it impacts the smaller miners, we're one mine show, so we're still very much sitting there waiting to see the details as we have been for some months now. I think we've got to resolve it immediately."

Under the existing proposal, miners could be taxed 40 percent on profits, with a blanket application on all commodities and existing mines.

In China, near term steel prices are expected to track slightly lower, according to a National Development and Reform Commission report issued today.

A tightening local property market and the on-going debt crisis in Europe are expected to dampen demand.

However, price support should come from a third quarter hike in global iron ore prices and Beijing's move to shut down outdated production by end-September.

Analysts say they expect further consolidation.

(SOT) Thomas Wrigglesworth, Head of Asia-Pac, Citi:

"(An) industry expert said the other day that he thought that the easy wins in terms of consolidation in China are taking place. Obviously the government is very much making its point clear - it's out to close down small and undersized blast furnaces in China. I think they will be more successful this year. Certainly, using economics, the profitability of steel production is the most powerful tool in doing so. We also understand they'll be using the banking system to restrict loans to those smaller steel mills, and make it harder for them to acquire raw materials, and force consolidation through that route."

Steel exporters are also gearing up for the removal of tax rebates on certain products come July 15.

China exported some 24 million tons of steel products last year.

Thomas Wrigglesworth of Citi says, despite the rebate reduction, exports could continue.

(SOT) Thomas Wrigglesworth, Head of Asia-Pac, Citi:

"Initially, the rebates reductions successfully meant that a lot of the big Chinese steel mills and exporters asked for an incremental US$60 a ton on steel. I think that's, from their international markets, that completely counts as what we're seeing in spot prices in the Southeast Asian markets, which is actually people like Hyundai steel cutting prices in their Southeast Asian market. So initially it's gonna hurt, but it becomes a story of relative profitability. If the domestic market in China profitability from selling a ton of steel is still worse than actually exporting it into that Southeast Asian market, without the rebate, then that's gonna continue, we're gonna continue to see exports."

And before we go, a look at Asian automakers... whose sales have been on the recovery track, thanks to increased consumer confidence.

This week, Japan's largest car makers have all announced hikes in production, thanks to demand from China and the US.

2010 has also proved to be a winning year for South Korean auto makers as Hyundai Motor and Kia Motors post record-breaking sales...both at home and abroad.

But not all car manufacturers in the country are on the fast lane. Ssangyong Motor, the country's smallest car manufacturer by sales...is at a crucial crossroad.

Ssangyong Motor has been under court receivership since January 2009 as demand plummeted for its signature SUVs and after failing to receive additional support from its owner, Shanghai Automotive Industry Corporation. The cash-strapped company is now hoping the right partner will turn its woes around.

(Voice of Translator) - Sang-Jin Choi, CFO, Ssangyong Motor Company:

"Ssangyong Motor has come a long way and is now at a turning point. An ideal investor would be one that can provide us positive momentum that will grant us long-term growth and stability in the future."

6 companies are currently in the running to bid for this financially battered company...Hoping for a white knight to come into the rescue may be a bit far-fetched but the consensus is that mistakes from the previous acquisition should not be replicated.

Among the candidates, Renault Nissan is seen as the strongest.

(Voice of Translator) - Hang-koo Lee, Director, KIET (Korea Institute for Industrial Economics & Trade):

"Renault Nissan is perceived as one of the most powerful runner. Their ties with Korea's Renault Samsung as well as the ability to complement is what makes them a likely winner."

India's biggest SUV and tractor maker, Mahindra and Mahindra is also in the race and could have synergies as well. This conglomerate may be able to provide a platform for Ssangyong Motors to tap the Indian and Central Asian markets...but the benefits work the other way too.

(Voice of Translator) - Kim Pil-soo / Professor, Daelim University & College:

"Ssangyong has a much better diesel technology than Mahindra...and the company will also be revalued in terms of pricing....The Korean market is also extremely attractive because it not only has Japan but the world's biggest market China as its neighbor...."

But Ssangyong's powerful union could also dictate who gets to buy the carmaker.

(Voice of Translator) - Kim Kyu-han, Union Leader, Ssangyong Motor Labor Union:

"We welcome investors as long as they promise employment stability, collective agreement, and investment... Ssangyong Motor is looking for a financial investor, not a strategic investor. So we oppose private equity funds that seek short-term profits."

And look for the government to pay greater attention to this investment as well. That's after criticism that letting Shanghai Automotive Industry buy the company in the first place was a mistake. Due diligence will continue till the 16th of next month and the hopefully the savior of Ssangyong Motor will be announced in August.

Rhie-young Lim, SBS-CNBC.

And .. that wraps up today's Asia Market Daily.

I'm Saijal Patel and you're watching a co-production by CCTV and CNBC — first in business worldwide.

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