Asian Shares Slide As EU Deal Glow Fades

Students protested in the thousands in London on November 9, 2011 in opposition to tuition increases. After demonstrators erected tents they were immediately torn down by the British cops., a photo by Pan-African News Wire File Photos on Flickr.

Asian shares slide as EU deal glow fades

By Song Jung-a in Seoul and Vivianne Rodrigues in New York
Tuesday 03:25 GMT

Asian shares were hit by growing risk aversion after credit rating agencies said Europe’s debt crisis was far from over and European leaders did little to resolve the crisis at their summit last week.

The MSCI Asia Pacific index slid 1 per cent with Japan’s Nikkei 225 Stock Average off 1.4 per cent, Australia’s S&P/ASX 200 down 1.4 per cent and South Korea’s Kospi Composite index 1.4 per cent lower. Hong Kong’s Hang Seng index shed 1.4 per cent while China’s Shanghai Composite index lost 0.4 per cent.

Investor sentiment soured in overnight trading after Fitch Ratings predicted a “significant” economic downturn in Europe and added that the region’s sovereign debt crisis would likely continue throughout next year, while Moody’s Investors Service said the crisis remains in a “critical and volatile stage.”

Technology shares lost ground after Intel’s profit warning.The world’s largest chipmaker by sales said that its fourth-quarter revenues would miss forecasts because of a shortage of hard disk drives created by Thailand’s devastating recent floods.

Japan’s Tokyo Electron fell 2.8 per cent and Sony declined 2.2 per cent in Tokyo while Samsung Electronics lost 1.1 per cent and Hynix Semiconductor dropped 2.1 per cent in Seoul. Elpida Memory bucked the trend, rising 2.4 per cent on bargain-hunting after a recent sharp sell-off.

Olympus gained 3.3 per cent to a six-week high after media reports said that auditors are set to approve the company’s financial statements for the past five years.

Other exporters were also lower on concerns of the global economic outlook. Toyota Motor retreated 1.9 per cent in Tokyo while Hyundai Motor fell 1.8 per cent in Seoul.

Resources stocks were hit by lower oil and metal prices. BHP Billiton was down 2.3 per cent in Sydney while Aluminum Corp of China shed 2.8 per cent in Hong Kong.

But China Gas Holdings soared 21.8 per cent after Sinopec and ENN Energy Holdings agreed to buy the outstanding shares in the company for about $2.15bn. Sinopec shares declined 2 per cent while ENN surged 4.8 per cent.

Gold producers fell on lower gold prices. Zhongjin Gold fell 1.7 per cent in Shanghai while Shandong Gold dropped 2 per cent and Zijin Mining declined 1.4 per cent.

Financial shares were among other major losers as the cost of insuring European debt increased to almost record highs. Mitsubishi UFJ Financial Group, Japan’s largest lender by market value, dropped 2.9 per cent while in Sydney Westpac Bank was off 2.1 per cent.

Samsung Card plunged 6.6 per cent, heading for the its close since May 2009, after the company said it plans to sell its stake in Samsung Everland to KCC Corp at a big discount. The South Korean credit-card issuer said it intends to sell 425,000 Samsung Everland shares at Won1.82m apiece, which analysts at Woori Investment & Securities said is 15 per cent lower than the book value estimated by the company in September.

In currency markets, the yen was trading at Y77.92 per US dollar from Y77.63 late in New York. It was at Y102.69 per euro from Y102.67.

In commodities markets, spot gold fell 35 cents to $1,660 per troy ounce while January Nymex crude oil futures gained seven cents to $97.84 per barrel on Globex.

Overnight, markets sold off as the bounce delivered by last week’s European summit deal faded.

Demand for European and US equities fell, with the FTSE All-World equity index down 1.6 per cent and the S&P 500 index dropping 1.5 per cent.

The picture continued to darken after the US market closed, when Moody’s said it was putting eight Spanish banks and two bank holding companies on review for downgrade, and downgraded the subordinated debts of 21 Spanish financial institutions.

Moody’s said its move reflected “increased loss expectations with respect to [the banks’] commercial real estate exposure and an anticipation of reduced earnings generation capacity available to strengthen provisions or capital in light of the weakened growth outlook for the Spanish economy”.

Risk appetite was weak, with the dollar index – which tends to have an inverse correlation to investor bullishness – up 1.1 per cent. The euro also resumed declines and German Bund yields fell 8 basis points to 2.04 per cent. In the US, three-year benchmark Treasury yields were trading at 0.35 per cent after the government sold $32bn of the securities at auction.

News over the weekend that China’s raw material imports surged in November did not help commodities. Copper was down 2.6 per cent to $344.3 a pound, and Brent crude was lower by 1.1 per cent to $107.43 a barrel.

The single currency took a leg lower as the European day moved into gear, falling below $1.33 per euro. Declines accelerated in US trading hours, with the euro sliding 1.5 per cent at $1.3183. The euro is the worst-performing main currency this month, down about 1.9 per cent against the greenback.

Dealers were keeping a close eye also on the sale by Italy of €7bn of one-year bills. The euro initially came off its lows after Rome revealed that the sale of its notes had got away at a yield of 5.95 per cent, down from 6.09 per cent in a similar auction last month.

But the euro soon fell back and trading in the cash bond markets suggests anxiety lurks. The yield on Italian 10-year paper, the market’s current proxy for sovereign debt angst, rose as much as 20bp to 7.06 per cent, according to Reuters.

Eurozone debt worries boosted the appeal of US government bonds, with a measure of demand at Monday’s Treasury auction – the bid-to-cover ratio – coming in at 3.62. That is the highest ratio for the securities since 1993. US government debt, including reinvested interest, has returned almost 9 per cent this year, according to Bank of America Merrill Lynch data. That compares with a 1.8 per cent return on the S&P, with dividends included.

Additional reporting by Jamie Chisholm in London.