Asia-Pacific Markets

Asian Stocks Stumble as China Tightens Credit

CNBC with wires

Asian stock markets suffered losses on Wednesday following the weaker close on Wall Street and on news that China's central bank was tightening monetary conditions.

China's central bank on Tuesday raised bank reserve requirements by 0.5 percentage points effective Jan. 18, its strongest step so far towards tightening monetary policy in response to increasing concerns about its economy overheating.

Japan's Nikkei 225 average closed lower, hurt by profit-taking and a strong yen, while resource shares dropped after China's decision to start tightening monetary conditions sparked concerns the move might slow demand.

The benchmark index shed 144.11 points to 10,735.03 after closing at a 15-month high on Tuesday. The broader Topix retreated 1.1 percent to 944.02.
Japan Airlines sank to a record low of 7 yen, the second straight day it has fallen by its daily limit of 30 yen, on growing expectations the airline is headed for bankruptcy and a delisting from the Tokyo exchange, but analysts said its impact on the overall market was negligible.  

Best Denki plunged 19.7 percent to 277 yen after the consumer electronics retailer said its full-year net loss is likely to be more than 20 times bigger than previously forecast, as it plans to book charges from closing up to 30 percent of its stores and from folding its struggling subsidiary.

Bank shares fell after their U.S. peers were hurt by talk that President Barack Obama is considering a levy on financial services firms to recoup losses from the Troubled Asset Relief

Ferronickel producer Pacific Metals lost 2.9 percent to 698 yen, smelter Toho Zinc fell 2.1 percent to 468 yen and fellow smelter Dowa Holdings shed 2.4 percent to 530 yen.

Steel firms slid after Credit Suisse downgraded its stance on the steel sector, citing demand concerns at home and abroad.

Nippon Steel shares fell 3.3 percent to 282 yen, JFE Holdings lost 4.1 percent to 3,615 yen, Kobe Steel shed 1.6 percent to 183 yen and Tokyo Steel slipped 3.4 percent to 1,090 yen.

Construction machinery stocks dropped on profit-taking sparked by worries that China's economy might slow. Komatsu, the world's second-biggest maker of earth-moving machinery, fell 2.6 percent to 2,042 yen. Hitachi Construction fell 2.3 percent to 2,507 yen.  
Toyota Motor and other exporters slipped after the dollar fell more than 1 percent against the yen on Tuesday.  Toyota lost 0.6 percent to 4,090 yen, Canon shed 0.6 percent to 3,925 yen and Kyocera Corp fell 1.4 percent to 8,390 yen.

The Korea Composite Stock Price Index (KOSPI) finished down 1.60 percent at 1,671.41 points, led by steelmakers and shipbuilders but gains in casualty insurers lent markets support.

China's monetary tightening and weaker-than-expected U.S. earnings, namely that of Alcoa, dealt a negative blow to market sentiment, said Ba Sung-young, a market analyst at Hyundai Securities.

POSCO, the world's No.4 steelmaker, fell 4.49 percent, while Hyundai Heavy Industries,the world's No.1 shipbuilder, retreated 5.64 percent.

Energy issues also declined, with SK Energy, South Korea's top crude refiner, losing 4.45 percent and S-Oil, the country's No.3, declining 1.82 percent.

Retail issues fell after South Korea's monthly jobs data showed no improvement from November and amid growing wariness about the economy.

South Korea's jobless rate in December last year was steady at a seasonally adjusted 3.5 percent from November, official data showed on Wednesday.

Shares in Lotte Shopping ended down 2.29 percent and Hyundai Department Store finished 2.84 percent lower.

Banks also slid, with KB Financial down 1.87 percent and Woori Finance shedding 4.44 percent.
Citigroup said strong earnings growth and sector consolidation would drive banking shares from the second quarter of this year.

But shares in casualty insurers outperformed, with Samsung Fire rising 1.52 percent and Hyundai Marine & Fire advancing 2.23 percent.

Australian stocks lost 0.6 percent, dragged down by a poor start to the U.S. earnings season and concerns over the pace of global economic recovery after China's surprise move to tighten monetary policy.

Chevron on Tuesday said its fourth-quarter profit would be sharply lower than in the previous

The benchmark S&P/ASX 200 index fell 31.4 points to 4,868.1, adding to Tuesday's 1 percent fall.

The New Zealand's benchmark NZX 50 index slipped 14.1 points, or 0.4 percent, to 3,276.2.

Mining companies, which are sensitive to China's economic growth, fell sharply on concerns that slower growth would crimp demand for metals.

BHP Billiton, the world's biggest miner, lost 0.9 percent to A$43.12. Smaller rival Rio Tinto dropped 1.6 percent to A$77.12. Iron ore miner Fortescue Metals fell 1.9 percent to A$5.11.

Sentiment was also spooked by engineering contractor WorleyParsons' cut of its 2010 earnings forecast due to poor performance from its U.S. operations.

WorleyParsons tumbled 11.5 percent to A$25.99 and its downbeat outlook sparked a sell-off in other engineering and construction related companies.

Downer EDI lost 3.8 percent to A$8.92 and United Group slipped 3.1 percent to A$13.95.

Defensive stocks benefited as investors switched out of high profit growth stocks due to uncertain earnings outlook.

Telecommunications firm Telstra added 0.9 percent to A$3.34 and supermarket chain Woolworths rose 0.4 percent to A$27.91.

Uranium miner Energy Resources Australia fell 2.8 percent to A$22.27 after the company said its fourth quarter uranium oxide production fell 30 percent.

Hong Kong's Hang Seng Index fell 2.6 percent or 578 points and China's key Shanghai Composite Index sank 3.1 percent to 3,172.7 as China's decision to raise bank reserve requirements could signal an end to cheap and easy funding.

Hong Kong- and Shanghai-traded stocks of Chinese companies in the resources, property and banking sectors fell across the board.

The property sector dropped. China Resources Land down as much as 6.2 percent before steadying at HK$15.92, down 4.7 percent.

Chinese banks also declined. ICBC, the world largest lender by market capitalization, down 3.9 percent in Shanghai and 2.9 percent in Hong Kong.

The impact on banks may be less extreme than on other sectors, however. The reserve requirement rise could be a long-term positive for China's biggest lenders as the policy shift may signal a future move to lift interest rates, which would boost bank profits.

In a note on Wednesday, Citi identified China Construction Bank,China Merchants Bank and China Citic Bank as the biggest possible beneficiaries from higher net interest margins.

"The impact of tightening on earnings is actually a positive," said May Yan, China banking analyst at Nomura. "Our house view is there will be three 27 basis point interest rate rises this year, starting from the first quarter."

Continued reserve requirement increases could hurt smaller banks, however, which have less cash on hand and could be forced to cut back on lending, Citi said in its note.

China's policy shift will raise the reserve ratio requirement to 16 percent for big banks and 14 percent for smaller financial institutions.

Resources stocks were hard hit with Chalco, the country's largest aluminum maker, down 5.9 percent.

The prospect of higher interest rates could lift the value of the yuan, which in turn would raise the price of China commodities in dollar terms, making them less competitive in global markets.

China Shineway Pharmaceutical Group fell as much as 12.86 percent to a one-month low, the most actively traded stock in Hong Kong, following news of a share sale by a shareholder.

The shareholder was selling 111.6 million shares for roughly $200 million, according to a term sheet obtained by Reuters on Tuesday.

Taiwan stocks ended down 1.36 percent at a two-week closing low, with losses in firms with investments in China weighed by news of Chinese monetary tightening.

The main TAIEX share index fell 112.81 points to 8,196.56, its lowest close since Dec. 31, 2009.

Cathay Financial, the island's biggest listed financial holding firm, dropped 2 percent, dragging the financial sub-index 1.93 percent lower.

Techs suffered losses across the board. Taiwan Semiconductors fell 1.2 percent and AU Optronics lost 2.8 percent.

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