Asian Stocks Decline as Japan Enters Correction on Fed – Bloomberg

Asian stocks fell for a second week,
with the regional benchmark index capping the first monthly loss
in seven months, amid concern the Federal Reserve will scale
back its stimulus, causing interest rates to rise. Shares in
Japan, the world’s best performing major market, entered a
correction as the yen rose.

Sony Corp. (6758), a Japanese TV maker that gets 67 percent of its
sales abroad, declined 2.9 percent for the week. Sun Hung Kai
Properties Ltd. (16), Hong Kong’s biggest builder, dropped 5 percent
on concern higher interest rates will hurt the property market.
Korea Electric Power Corp. (015760) slid 9.9 percent in Seoul after South
Korea’s government ordered the shutdown of two nuclear reactors.
Langham Hospitality Investments Ltd. (1270) slumped 12 percent after
the hotel operator debuted in Hong Kong on May 30.

The MSCI Asia Pacific Index fell 2.7 percent to 134.84 this
week, capping a 5.1 percent plunge in May. Japan’s Topix index
slumped 4.9 percent this week extending its loss from its May 22
high to 11 percent. A correction is defined as a drop of more
than 10 percent from a recent peak.

“There’s ongoing concern about policy tightening overseas,
and overall money flow has turned risk off,” said Isao Kubo, a
Tokyo-based equity strategist at Nissay Asset Management Corp.,
which oversees about 6 trillion yen ($59 billion.) “That global
environment brought into relief the overheating of Japanese
shares. That’s why we saw a correction.”

Relative Value

The MSCI Asia Pacific Index has retreated 6.6 percent from
the closing level on May 20, which was the highest since June
2008. Asia’s benchmark trades at 13.2 times average estimated
earnings, compared with multiples of 14.8 for the Standard &
Poor’s 500 (SPX) Index and 13.2 for the Europe 600 Index, according to
data compiled by Bloomberg.

Japan’s Nikkei 225 Stock Average slumped 5.7 percent, its
biggest weekly loss since the week ended March 18, 2011 in the
aftermath of a record earthquake and tsunami and subsequent
nuclear disaster. Hong Kong’s Hang Seng Index (HSI) declined 1 percent
and China’s Shanghai Composite Index added 0.5 percent before
the government is to report the nation’s manufacturing data
today.

South Korea’s Kospi Index rose 1.4 percent. Australia’s
S&P/ASX 200 Index dropped 1.1 percent. Singapore’s Straits Times
Index slipped 2.4 percent. Taiwan’s Taiex Index advanced 0.6
percent.

Yen, Exporters

Japanese exporters fell as the yen traded near a four-week
high against the dollar. The yen touched 100.47 per dollar on
May 30, the highest since May 9. A stronger yen cuts the value
of their overseas earnings when repatriated home. Sony dropped
2.9 percent to 2,049 yen. Toyota Motor Corp. (7203), the world’s
biggest carmaker, slid 3.5 percent to 6,010 yen. Nissan Motor (7201)
Co., a carmaker that generates 34 percent of its sales in North
America, declined 3.5 percent to 1,115 yen.

Even after falling 11 percent from its May 22 high, the
Topix is still up 32 percent this year. That’s more than twice
the return of the Standard & Poor’s 500, in local currency
terms. Stocks surged after the Bank of Japan pledged in April to
reach 2 percent inflation within two years by doubling the
monetary base with bond purchases.

Reuters on May 30 reported that Japan’s Government Pension
Investment Fund is considering a change in strategy that would
allow it to put more of its assets into stocks. The fund wants
to take advantage of Japan’s best equity rally in decades and
move away from the bond market’s volatility, Reuters said,
citing people familiar with the matter.

Fed Policy

Fed Chairman Ben S. Bernanke said last week the central
bank could reduce monetary stimulus if officials see signs of
sustained improvement in growth. U.S. consumer confidence
climbed in May to the highest level in more than five years, a
Conference Board report showed on May 28. The index rose to
76.2, the strongest since February 2008.

“If we see a global tightening or retreat in quantitative
easing, money will leave Hong Kong,” said Steven Leung,
director of institutional sales at UOB-Kay Hian Holdings Ltd. in
Hong Kong. “Interest rates in Hong Kong will follow and that
would have a big impact. Finance and property sectors will be
very sensitive to interest rates or liquidity flows.”

A gauge of property companies in the Topix has plunged more
than 20 percent from an April 12 high as yields on the country’s
government bonds jumped, boosting the cost of borrowing, amid
concern people will rotate away from fixed income to equities.

Property Developers

Mitsubishi Estate Co. slid 4 percent this week to 2,547 in
Tokyo. The company at one point in the week lost its place as
Asia’s biggest property company by market value to Hong Kong’s
Sun Hung Kai, which declined 5 percent to HK$103.20. Wharf
Holdings Ltd. (4) sank 4.9 percent to HK$69.10 and Hang Lung
Properties Ltd. (101) plunged 8 percent to HK$27.30.

Korea Electric Power, parent of nuclear operator Korea
Hydro & Nuclear Power Co., slid 9.9 percent to 26,800 won.
Analysts at Daishin Securities Co. and Shinyoung Securities Co.
cut their share-price estimates to 40,000 won and 35,000 won
respectively, citing prospects the reactor shutdowns would hurt
operating profit.

Langham sank 12 percent to HK$4.39 this week after falling
9.2 percent on its trading debut May 30. The company is raising
net proceeds of HK$4.08 billion in its initial public offering
in which its shares were marketed at between HK$4.65 and HK$5.36
each.

To contact the reporter on this story:
Yoshiaki Nohara in Tokyo at
ynohara1@bloomberg.net

To contact the editor responsible for this story:
Nick Gentle at
ngentle2@bloomberg.net