Asian Stocks Erase This Year's Gains on Concern About Inflation in China

Bloomberg Jan 22--Asian stocks fell this week, with the benchmark index erasing its gain for the year, amid concern China’s faster-than-expected economic growth will add pressure for it to step up measures to combat inflation.

BHP Billiton Ltd., the world’s largest mining company, slid 2.5 percent in Sydney as commodity prices retreated. Mitsubishi Corp., Japan’s No. 1 commodities trader, declined 4.1 percent in Tokyo. Cnooc Ltd., China’s biggest offshore oil producer, dropped 2.1 percent in Hong Kong. James Hardie Industries SE, the biggest seller of home siding in the U.S., declined 3.1 percent in Sydney.

“The market is worried that growth in China has been too strong and that officials may need to tighten policy further to prevent the economy overheating,” said James Holt, who helps manage about $40 billion at BlackRock Investment Management Australia） Ltd. “Since China is one of the few growth engines in the world right now, markets have sold off.”

The MSCI Asia Pacific Index retreated 1.7 percent to 136.48 this week, halting five straight weeks of advance. Hong Kong’s Hang Seng Index dropped 1.7 percent. China’s Shanghai Composite Index slipped 2.7 percent.

Stocks in Indonesia and neighboring Philippines also slid, driving their benchmark indexes more than 10 percent below recent highs, on concern inflation will lead to higher borrowing costs and pare corporate earnings.

Japan’s Nikkei 225 Stock Average fell 2.1 percent this week, while Australia’s S&P/ASX 200 Index slid 1 percent.

Miners Retreat

BHP slid 2.5 percent to A$44.71 in Sydney. Rio Tinto Group, the world’s third-largest mining company, slipped 3.6 percent to A$84.38. Mitsubishi declined 4.1 percent to 2,273 yen. Cnooc dropped 2.1 percent to HK$18.64.

Crude for March has fallen 3 percent this week. The February contract expired Jan. 20 after dropping 2.2 percent to $88.86, the lowest since Jan. 7.

The London Metal Exchange Index of prices for six industrial metals including copper and aluminum lost 2.1 percent this week.

“Concerns remain about China’s tightening,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “People are worried that with continued tightening from emerging economies, especially China, demand for commodities will decline.”

China may raise interest rates early next month if the nation’s consumer price situation remains unfavorable in the first quarter, the China Securities Journal said in a front-page editorial on Jan. 21. There is room for an increase in the reserve requirement ratio for banks, according to the report.

Mixed U.S. Data

The MSCI Asia Pacific Index lost 1.1 percent this year, compared with gains of 0.9 percent by the S&P 500 and 1.2 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14 times estimated earnings on average, compared with 13.4 times for the S&P 500 and 11.1 times for the Stoxx 600.

James Hardie fell 3.1 percent to A$6.32. China Merchants Holdings International Ltd., which has interests in ports moving about a third of the country’s container traffic, dropped 3.1 percent to HK$32.50 in Hong Kong.

Goldman Sachs Group Inc. reported fourth-quarter net income decreased to $3.79 a share. Wells Fargo & Co., the largest U.S. home lender, posted a fourth-quarter profit that missed some analysts’ estimates as income from mortgage banking weakened.

Also in the U.S., housing starts fell 4.3 percent in December to a 529,000 annual rate, Commerce Department figures showed Jan. 19. The median forecast in a Bloomberg News survey called for a 550,000 rate.

Indonesia, Philippines

That news was tempered as sales of previously owned U.S. homes and the index of leading indicators exceeded forecasts, signs the expansion is gaining momentum at the start of 2011.

PT Unilever Indonesia slumped 11 percent to 14,250 rupiah in Jakarta trading after palm oil futures rose, potentially increasing the production cost of the company’s Lifebuoy and Lux soaps. Palm oil and its derivatives are used in making personal- care products.

The Philippine Stock Exchange Index retreated 4.4 percent in Manila, a decline of 10 percent from its all-time high of 4,397.30 on Nov. 4. The Jakarta Composite index dropped 5.3 percent, extending its tumble to 11 percent since its Dec. 9 record.

Indonesia and the Philippines are set to join China and India in sliding more than 10 percent from their peaks, a level signifying a so-called correction to some analysts and investors.

Inflation Threat

“Inflation is the biggest threat and concern in the market now,” said Julian Tarrobago, who helps oversee $200 million in assets at ATR KimEng Asset Management Inc. in Manila. “The market is well aware that inflation will come after rapid growth and it has now reached a point that it has become an issue.”

China Southern Airlines Co., the nation’s largest carrier, tumbled 12 percent to HK$4.10 in Hong Kong trading on speculation industry earnings growth will slow as snowstorms spur flight cancellations. Air China Ltd., the world’s largest airline by market capitalization, slipped 6.9 percent to HK$8.55.

“Extreme weather conditions may have a short-term impact on the airlines because of flight disruptions,” said Li Lei, an analyst at China Securities Co. in Beijing. “People will also cut down on their travel plans.”

LIC Housing Finance Ltd. soared 11.4 percent to 194.05 rupees in Mumbai after Deutsche Bank AG boosted its rating on the stock to “hold” from “sell.” The home-loan lending unit of India’s largest insurer reported third-quarter net income rose 38 percent.