Asia Stocks Drop on Fed; H-Share Index Near Bear Market
Asian stocks fell, with a gauge of Chinese shares in Hong Kong poised to enter a bear market, after the Federal Reserve signaled it may raise U.S. interest rates from the middle of next year.
Newcrest Mining Ltd. (NCM), Australia’s biggest gold producer, slumped 7.9 percent after bullion dropped the most in three months as the Fed’s announcement curbed demand for havens. China Mobile Ltd. dropped 3.2 percent to head for the lowest close in almost five years in Hong Kong after the world’s largest phone company posted profit that missed analyst estimates. BYD Co., the electric-car maker backed by Warren Buffett’s Berkshire Hathaway Inc., tumbled 10 percent in Hong Kong after projecting lower-than-expected first-quarter profit.
The MSCI Asia Pacific Index fell 1.9 percent to 132.18 as of 1:46 p.m. in Hong Kong, heading for the lowest close since Feb. 6. Almost five shares dropped for each that rose on the gauge. The Fed said yesterday its key rate, currently near zero, would be 1 percent by the end of 2015 and 2.25 percent a year later.
“We’re going to see more follow-through selling in Asia,” Toby Lawson, head of futures, options and cash equities trading for Asia Pacific at Newedge Group SA in Sydney, said by phone. “It’s significant that the Fed fund rate will rise to 1 percent by the end of 2015. We could see capital outflows from emerging markets back into the U.S., especially given residual concerns about China’s economy slowing.”
Bear Market
The Hang Seng China Enterprises Index (HSCEI) of mainland stocks traded in Hong Kong dropped 1.5 percent, bringing losses from a Dec. 2 high through the 20 percent threshold that some investors consider a bear market. The city’s benchmark Hang Seng Index declined 1.5 percent.
The Shanghai Composite Index fell 0.3 percent. Goldman Sachs Group Inc. cut its first-quarter growth outlook for Asia’s largest economy to 5 percent from 6.7 percent, citing disappointing economic data. China will speed up construction projects and other measures to support growth after a slowdown in industrial output and investment boosted the risk of missing a 7.5 percent expansion target for the year.
Japan’s Topix index dropped 1.6 percent after rising by as much as 0.6 percent. South Korea’s Kospi index decreased 0.9 percent. Australia’s S&P/ASX 200 Index declined 1.2 percent. Singapore’s Straits Times Index slipped 0.6 percent, while Taiwan’s Taiex index slid 1.1 percent. New Zealand’s NZX 50 Index added 0.1 percent.
The MSCI Asia Pacific Index lost 4.7 percent this year through yesterday, when shares on the gauge traded at 12.6 times estimated earnings. That compares with a multiple of 15.8 for the Standard & Poor’s 500 Index and 14.3 for the Stoxx Europe 600 Index.
Stimulus Outlook
Futures on the S&P 500 slipped 0.2 percent today after the U.S. benchmark index fell 0.6 percent yesterday. The central bank’s bond-buying program, which was reduced by another $10 billion to a $55 billion monthly rate, will be wound down by year-end with a rate increase to follow within six months, Chair Janet Yellen indicated.
Yellen said the quantitative-easing program used to stimulate the U.S. economy would end this fall should the central bank continue to taper in measured steps. There will be “considerable time” between the end of the stimulus and the first rate increase, meaning “six months or that type of thing,” she said.
Most Federal Open Market Committee participants reiterated their view that rates will be held at current levels until 2015. The median forecast for rates among 16 Fed officials rose from December, when they estimated the rate at the end of next year at 0.75 percent, and 1.75 percent for the end of 2016. Officials said they will look at a wide range of data in determining when to boost borrowing costs, dropping a pledge tying interest rates to a 6.5 percent unemployment rate.
Hawkish Fed
“The FOMC was more hawkish,” said Anthony Valeri, a market strategist with LPL Financial Corp. in San Diego, which oversees $350 billion. “The expectation for higher rates got pushed forward and the bond market was not priced for that.”
The U.S. and Europe are moving to increase sanctions on Russia after President Vladimir Putin signed an accord setting in motion Crimea’s accession to Russian territory. With visa bans and asset freezes on Russian officials failing to sway Putin, European Union leaders meet today to consider their next move.
Ukraine ordered the removal of its military from the majority Russian-speaking Crimea and said it will strengthen its deployments on the country’s border with Russia.
Gold producers declined. Newcrest sank 7.9 percent to A$10.61. Zijin Mining Group Co., China’s largest gold producer, slipped 2.4 percent to HK$1.60 in Hong Kong.
Myer, BYD
Myer Holdings Ltd. fell 5.3 percent to A$2.52 in Sydney, the biggest decline since May. The department-store operator said its second-half gross operating profit margin will be flat compared to a year earlier. The company had forecast an improvement in September.
BYD tumbled 10 percent to HK$49.60 in Hong Kong. The company projected first-quarter net income of as much as 15 million yuan ($2.4 million), which Nomura Holdings Inc. said was lower than expected.
Among shares that advanced, Country Garden Holdings Co. (2007), Chinese developer controlled by billionaire Yang Huiyan, jumped 10 percent to HK$3.14, rebounding from a 12 percent slump yesterday. Goldman Sachs added the company to its conviction buy list.
(By Jonathan Burgos)
Source: bloomberg
