Crisis pushes Asia index to biggest weekly loss in year

Seoul :  Asian stocks fell, driving the MSCI Asia Pacific Index to its biggest weekly loss in more than a year, on concern Europe's debt crisis may derail the global recovery and after China's manufacturing growth slowed.

HSBC, Europe's largest bank, tumbled 9.1 per cent in Hong Kong even as European leaders unveiled a bailout plan for Greece. Canon, which counts Europe as its biggest market, sank 6.9 per cent in Tokyo. Yanzhou Coal Mining Company, a Chinese energy company, sank 13 per cent in Hong Kong as a purchasing managers' index fell to a six-month low. BHP Billiton, the world's biggest mining company, lost 8 per cent after Australia proposed the world's heaviest tax regime on mining companies.

"The Greek rescue package hasn't curbed speculation that more countries will require similar bailouts," said Tim Schroeders, who helps manage about $1.1 billion (Dh4.04 billion) at Pengana Capital in Melbourne. "The new Australian resources tax is an unwelcome burden and Chinese demand may cool."

The MSCI Asia Pacific Index fell every day last week, losing 5.9 per cent to close at 118.42, its biggest weekly loss since February 2009, as European policy makers came under mounting pressure to broaden their response to the crisis after global equity markets tumbled.

In the US last week, waves of computerised trading exacerbated a selloff triggered by Europe's debt crisis, causing the Dow Jones Industrial Average's largest intraday point drop ever on May 6. The Dow average sank 5.7 per cent last week, while the Standard & Poor's 500 Index lost 6.4 per cent.

The US Standard & Poor's 500 Index fell as much as 8.6 per cent on May 6, its biggest plunge since December 2008, before ending down 3.2 per cent, a sell-off that briefly erased more than $1 trillion in market value.

Japan's Nikkei 225 Stock Average, closed for a three-day holiday at the start of the week, sank 6.3 per cent. China's Shanghai Composite Index slumped 6.4 per cent and Hong Kong's Hang Seng Index lost 5.6 per cent. Australia's S&P/ASX 200 Index declined 6.8 per cent, while South Korea's Kospi Index slid 5.4 per cent.

Austerity measures

HSBC fell 9.1 per cent to HK$73.55 even after the Greek parliament approved austerity measures as a condition of its 110 billion euros bailout. European Central Bank council member Axel Weber warned in the week that Greece's fiscal crisis may have "grave contagion effects" in the euro area.

Mitsubishi UFJ Financial Group, Japan's largest bank, sank 6.9 per cent to 460 yen in Tokyo. Commonwealth Bank of Australia, the nation's biggest lender by market value, slumped 9.4 per cent to A$53.

"There is no dispute that risk appetite has come right off with the European worries," said Prasad Patkar, who helps manage $1.7 billion at Platypus Asset Management in Sydney.

"Damage caused by contagion is so firmly etched in people's minds from the dark days of the financial crisis that no one wants to be caught long risk whilst this sword is hanging over our heads."

Esprit Holdings, a Hong Kong-based clothier that gets about 85 per cent of its revenue in Europe, sank 12 per cent to HK$49.65. In Tokyo, Canon, a camera maker, lost 6.9 per cent to 4,055 yen in Tokyo.

Nintendo, the world's biggest maker of game consoles, slumped 11 per cent to 28,300 yen in Osaka after the company forecast profit will fall more than analysts estimated.

The MSCI Asia Pacific Index has tumbled 8.3 per cent from a 20-month high on April 15 as concerns grow that Greece's debt problems will spread to other countries in Europe. Companies in the index trade at an average 14.9 times estimated earnings, the lowest level since January 28, 2009, according to data compiled by Bloomberg.

Fear

"Worries about a ‘Global Financial Crisis Mark II' seem to be the fear in markets," said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which oversees about $90 billion. "While the fundamental picture is far better this time around, that fear is feeding on itself and pushing markets down."

In Shanghai, Industrial & Commercial Bank of China Ltd. slipped 3.3 per cent to 4.397 yuan after China increased bank reserve ratios for a third time this year. China Construction Bank, the country's No. 2 lender, fell 3.2 per cent to 5.08 yuan. The country's central bank said the reserve ratio for lenders will increase 50 basis points effective May 10.

"The increase in the reserve ratio requirement is still the beginning of tightening policies because what the government has done so far may not be enough to prevent the economy from overheating," said Zhang Ling, a fund manager at Shanghai River Fund Management. "We may see more to follow."

Besides increasing the reserve ratio, China has also introduced bans on loans for third-home purchases, higher mortgage rates and down-payment requirements for second-home purchases to curb property prices and prevent the world's fastest-growing economy from overheating.

Yanzhou Coal Mining tumbled 13 per cent to HK$19.40 last week in Hong Kong. A Chinese purchasing managers' index released on May 4 by HSBC and Markit Economics fell to a six-month low of a seasonally adjusted 55.4 from 57 in March. A number above 50 indicates an expansion.

Aluminium products

In Hong Kong, China Zhongwang Holdings, an aluminum products maker, slid 8 per cent to HK$6.24, while Anhui Conch Cement, a Chinese cement maker, fell 11 per cent to HK$22.30.

A gauge of raw-material producers in the MSCI Asia Pacific Index slumped 8.0 per cent last week, the most of 10 industry groups. BHP Billiton sank 8 per cent to A$37.50 in Sydney and Rio Tinto Group, the world's third-biggest mining company, slid 9.9 per cent to A$64.98.

Australia proposed a 40 per cent tax on resource profits from 2012. Prime Minister Kevin Rudd, preparing for an election within a year, said the changes will help the government pay for additional hospitals, retirement benefits and company tax reductions.

Mitsubishi, a Japanese commodities trading company, slumped 7.3 per cent to 2,081 yen in Tokyo. Mitsubishi and BHP Billiton are partners in the BHP Billiton Mitsubishi Alliance, the world's largest steel-making coal exporter.

Korea Zinc, the world's second-biggest zinc refiner, sank 5.6 per cent in Seoul to 184,500 won as a measure of metals traded in London plunged 8.0 per cent in the week.