Asian Stocks Extend Global Rout Amid Earnings, Credit Concerns

Aug 01, 2014 4:48 am ET

Aug. 1 (Bloomberg) -- Asian stocks slumped, extending the biggest global rout in six months that saw the Dow Jones Industrial Average wipe out this year’s gains in one session amid weaker earnings and credit-market concerns.

Skymark Airlines Inc. sank 11 percent after Japan’s third- largest carrier said it may go out of business should it have to pay Airbus Group NV a penalty for canceling the purchase of six A380 superjumbos. Samsung Electronics Co. fell 3.8 percent in Seoul after UBS AG cut its rating on the stock. Cheung Kong Holdings Ltd slid 4.7 percent in Hong Kong after the property developer controlled by billionaire Li Ka-shing posted profit that missed estimates.

The MSCI Asia Pacific Index fell 1 percent to 147.35 as of 4:39 p.m. in Hong Kong, heading for its largest drop since May 7, as nine of its 10 industry groups declined. The gauge is poised for a 1 percent weekly decline, its first such loss in three weeks after climbing to the highest close since June 2008 earlier this week and yesterday capping a 2.1 percent gain for July. The MSCI All-Country World Index sank 1.5 percent yesterday, the most since February.

“The market looks fully valued and investors have been looking for an excuse to sell,” Angus Gluskie, who helps oversee more than $550 million at White Funds Management in Sydney, said by phone. “We’ve got a range of convenient reasons for investors to take some money off the table. The geopolitical risks have been rising and data flow in the U.S. is suggesting that the Fed may have to raise interest rates sooner rather than later. The Argentine issue is another piece of adverse news flow.”

Regional Gauges

Japan’s Topix index lost 0.6 percent. Australia’s S&P/ASX 200 Index slumped 1.4 percent at the close, its biggest loss in more than four months. New Zealand’s NZX 50 Index dropped 1.1 percent, the most since May 2013. Singapore’s Straits Times Index sank 0.9 percent and Taiwan’s Taiex index retreated 0.5 percent. South Korea’s Kospi index fell 0.2 percent. India’s S&P BSE Sensex Index decreased 1 percent.

Hong Kong’s Hang Seng Index slipped 0.9 percent after yesterday capping its biggest monthly advance since September 2012. The Hang Seng China Enterprises Index of mainland shares traded in the city dropped 1.3 percent after entering a bull market this week. China’s Shanghai Composite Index lost 0.7 percent.

Futures on the Standard & Poor’s 500 Index fell 0.4 percent today. The U.S. benchmark index sank 2 percent yesterday, while the Dow fell 1.9 percent to erase the year’s gains as Exxon Mobil Corp. to Micron Technology Inc. tumbled amid weaker corporate results.

Volatility Increases

Market volatility increased, with the Chicago Board Options Exchange Volatility Index, known as the VIX, surging 27 percent yesterday to the highest level since April 11 as concern grew that the improving U.S. economy may force the Federal Reserve to raise interest rates sooner than expected.

Investors are also watching developments in Latin America as Argentina missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors. S&P declaring Argentina in default melded with concern over Europe’s debt position as Portugal’s Banco Espirito Santo SA was told to raise capital.

China’s manufacturing purchasing managers’ index increased to 51.7 in July from 51 the previous month, according to data released today by the National Bureau of Statistics and China Federation of Logistics. A private gauge of factory activity from HSBC Holdings Plc and Markit Economics rose to 51.7 last month from 50.7 in June. Levels of 50 or higher signal expansion.

China Challenge

“The challenges in China are still there,” Tim Schroeders, a portfolio manager who helps oversee $1 billion on in equities at Pengana Capital Ltd. in Melbourne, said by phone. “The government needs to ensure that bubbles don’t occur in areas such as the property market and ensuring a smooth transition for the economy. At this point in time, I think authorities are managing it pretty well.”

The MSCI Asia Pacific Index traded at 13.6 times estimated earnings yesterday compared with 16.2 for the S&P 500, according to data compiled by Bloomberg.

Of the companies on the Asia-Pacific benchmark gauge that have posted results since the beginning of July and for which Bloomberg has estimates, 60 percent beat earnings expectations.

Skymark slumped 11 percent to 187 yen, its lowest close since October 2009. The company said it’s considering halting unprofitable flights and borrowing money after its net loss more than tripled to 5.8 billion yen ($56 million) in the fiscal first quarter ended June.

Samsung, Rongsheng

Samsung dropped 3.8 percent to 1.292 million won in Seoul, its biggest decline since Jan. 2. UBS cut its rating on the stock to neutral from buy, saying it’s hard to see earnings improving through 2015.

China Rongsheng Heavy Industries Group Holdings Ltd. fell 2.5 percent to HK$1.54 in Hong Kong after the shipbuilder said it expects a “significant increase” in the net loss for the six months ended June after customers canceled orders.

Cheung Kong sank 4.7 percent to HK$143.60. Net income rose to HK$21.3 billion ($2.7 billion) from HK$13.4 billion a year earlier, the company said yesterday. Excluding property revaluation and one-off gains, profit was HK$12.8 billion, missing the HK$13.6 billion median estimate of five analysts compiled by Bloomberg.

Accordia Golf Trust slumped 12 percent to 85 Singapore cents in its trading debut. The company sold 782 million shares at 97 Singapore cents in its initial public offering.

Yahoo Japan Corp. tumbled 6.6 percent to 442 yen in Tokyo after the Internet portal posted flat operating profit.

Among shares that advanced, Sony Corp. jumped 4.7 percent to 1,885 yen in Tokyo as the maker of PlayStation game consoles posted a surprise first-quarter profit.