BLBG: Stocks Fall on Bank Rules as Yen, Australian Default Swaps Rise
By Patrick Chu and Saeromi Shin
Dec. 18 (Bloomberg) -- Asian stocks fell, led by banks, while contracts protecting against defaults in Australian debt rose the most in three weeks after financial regulators said lenders need to raise more capital by 2012 and more Greek bonds got downgraded. The yen strengthened.
The MSCI Asia Pacific Index fell 0.2 percent to 118.13 at 3:15 p.m. in Tokyo after being down as much as 0.6 percent earlier. The yen appreciated 0.3 percent against the dollar and the euro ended three days of losses after Pakistan denied rumors of a coup. The Markit iTraxx Australia index of credit-default swaps on 25 companies jumped 4.5 basis points to 91 basis points, Citigroup Inc. prices show.
Investors retreated from higher-yielding assets after FedEx Corp.’s profit forecast trailed analyst estimates and U.S. jobless claims unexpectedly rose, boosting concerns that the pace of the global economic recovery will slow. Pacific Investment Management Co., which runs the world’s biggest bond fund, increased cash holdings to the most since Lehman Brothers Holdings Inc. collapsed in September 2008 and EPFR Global reported money flowing into emerging market mutual funds slowed.
“This correction mode may last until the end of the year,” said Lim Chang Gue, a fund manager at Samsung Investment Trust Management Co. in Seoul, which manages $42 billion. “Investors expect the recovery in consumption to take a while and the U.S. job market data has reaffirmed it’s a tough road.”
Pimco’s Cash
Pimco Managing Director Bill Gross cut holdings of government debt and boosted cash in the $199.4 billion Total Return Fund to 7 percent in November from negative 7 percent in October, according to the company’s Web site. The fund reduced government-related debt to 51 percent of assets from a five-year high of 63 percent in October.
The MSCI index, which is up 32 percent this year, has fallen 3 percent since Dec. 3. The Nikkei 225 Stock Average lost 0.2 percent, led by a 3.2 percent drop at Mizuho Financial Group Inc., Japan’s third-largest bank by market value.
The Basel Committee on Banking Supervision said global banks need to increase capital quality by the end of 2012. On Dec. 16, Mizuho jumped 15 percent after the Nikkei newspaper said banks would have at least a decade to implement the rules.
The MSCI Emerging Markets Asia Index dropped 0.4 percent. EPFR Global reported fund inflows to developing economies slowed to a net $571.4 million in the week to Dec. 16 as Dubai restructured its debt.
China Stocks
China’s Shanghai Composite Index fell 1.2 percent, declining for a fourth day, the longest losing streak since Aug. 10, on concern new share sales will divert funds from existing equities. Property stocks slumped after the Shanghai Securities News said the government raised the down payment requirement for land purchases.
China Vanke Co., the nation’s biggest publicly traded developer, slid 4.6 percent, while Poly Real Estate Group Co., the second largest, lost 5.6 percent. Initial public offerings by nine companies to be listed on the ChiNext have attracted almost 900 billion yuan, the China Securities Journal reported today, citing company statements.
Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, fell 1.4 percent in Hong Kong. China Construction Bank Corp., the nation’s second-biggest lender by market value, dropped 0.6 percent and Bank of China Ltd. slipped 0.5 percent.
Fitch Ratings said Chinese banks’ capital strength is likely to be more “strained” than it appears as lenders increasingly use off-balance sheet transactions to free up room for further loan growth. The growing amount of unreported loan transactions, including re-packaging loans into wealth management products to sell to investors and the outright sale of loans to other financial institutions, represent a “growing pool of hidden credit risk” and may lead to downward revisions for some Chinese banks in 2010 and 2011, Fitch said.
S&P Futures
Futures on the Standard & Poor’s 500 Index rose 0.3 percent. While FedEx disappointed investors, Oracle Corp. and Research In Motion Ltd. reported or forecast earnings that beat estimates after U.S. trading closed. The U.S. benchmark index sank 1.2 percent in New York yesterday, the most in three weeks, after Citigroup sold stock at a discount and FedEx said earnings for the three months ending in February will be in a range of 50 cents to 70 cents a share, vs. 84 cents estimated by analysts.
The U.S. Labor Department said jobless claims increased to 480,000 last week from 473,000 a week earlier. The median forecast of economists surveyed projected a decline.
Yen Strengthens
The yen climbed against 15 of its 16 most-traded counterparts after Standard & Poor’s cut long-term credit ratings for Greek banks EFG Eurobank Ergasias and Alpha Bank AE by one level to BBB. S&P lowered Greece’s credit rating to BBB+ from A- this week as the country struggles to trim its budget deficit.
“Prospects for the euro-zone economy are growing murky, given sovereign debt woes and banking sector issues,” said Keiji Matsumoto, a currency strategist in Tokyo at Nikko Cordial Securities Inc. “The euro may stretch its decline both against the dollar and the yen.”
The euro fell 0.1 percent to 128.92 yen and gained 0.4 percent to $1.4393. The yen strengthened 0.4 percent to 89.57 U.S. cents. Pakistan President Asif Ali Zardari’s spokesman denied rumors of a coup that began after the country’s defense minister was barred from leaving the country.
Australia’s S&P/ASX 200 Index declined 0.4 percent, the biggest drop since Dec. 10, led by gold producers after prices of the metal fell in New York yesterday.
Australian Swaps
The Markit iTraxx Australia index of credit-default swaps on 25 investment-grade companies from Qantas Airways Ltd. to Telstra Corp. is headed for its biggest one-day gain since Nov. 27, according to CMA DataVision prices from New York.
“There’s some concern about sovereign risk with Standard & Poor’s downgrading Greece overnight,” said Joseph Yiu, a credit trader for Westpac Banking Corp. in Sydney. “While spreads crunched back in after Dubai there’s still concern over other countries and this is people getting set with some protection in case something blows up.”
Gold for immediate delivery advanced 0.7 percent to $1,106.44 an ounce in Singapore, after slumping 3.4 percent yesterday, the most since Dec. 4. Copper for delivery in three months on the London Metal Exchange increased 0.6 percent to $6,910 per metric ton, after dropping 2.4 percent yesterday, the most since Oct. 30.
