Asia Stocks Drop for Second Week on Dubai, Share Sale Concerns

VNStockNews.com - Asian stocks dropped for the second straight week on concern that companies will book losses from Dubai’s plan to delay debt payments and that share sales by banks will erode the value of existing holdings.

Kajima Corp. fell 16 percent after Daiwa Securities SMBC Co. said Japanese builders may lose “tens of billions of yen” if Dubai’s investment fund succeeds in delaying debt payments. Bank of China Ltd., which said this week it’s studying options to replenish capital, dropped 13 percent. Sony Corp., the maker of the PlayStation 3 game console, slid 6 percent as the dollar sank to a 14-year low against the yen. Santos Ltd., Australia’s third-biggest producer of oil and gas, slumped 4.6 percent as crude oil prices retreated in New York.

The MSCI Asia Pacific Index fell 2.6 percent to 113.90 this week, dragged down the most by financial companies. The gauge has climbed 61 percent from its lowest level in more than five years on March 9, amid signs government stimulus measures are reviving economies around the world.

“People are worried about the contagion effect from Dubai,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which oversees $75 billion. “Events like this bring back all the bad memories from the global financial crisis. The market has rallied a long way and is very sensitive to any bad news around debt default or financial problems.”

Vietnam Plunges

Japan’s Nikkei 225 Stock Average index lost 4.4 percent for a fifth weekly drop, even as exports last month fell at the slowest pace in a year as government spending helped bolster demand. South Korea’s Kospi Index sank 5.9 percent, during a week in which a central bank survey showed manufacturers’ confidence slipped to the lowest level in four months.

Hong Kong’s Hang Seng Index declined 5.9 percent, and the Shanghai Composite Index retreated 6.4 percent. Vietnam’s VN Index tumbled 12 percent as the central bank devalued the currency to curb inflation and narrow the trade deficit.

The MSCI Asia Pacific Index has risen almost 30 percent this year, on course for its steepest annual increase since 2003, on growing signs of a global economic revival. That has swelled the average price of stocks in the gauge to 21 times estimated earnings, compared with about 18 times for the S&P 500 and 15 times for Europe’s Dow Jones Stoxx 600 Index.

“Markets tend to consolidate after a very strong performance,” said Paul Xiradis, who manages $10 billion at Ausbil Dexia Ltd. in Sydney. “It’s a bit of a patience game from here. What we want to see is ongoing confirmation that things are improving, and then that being translated into improved earnings.”

Contractors Tumble

Markets were roiled this week after Dubai World, the government investment company burdened by $59 billion of liabilities, said it will ask creditors for a “standstill” agreement as it negotiates to extend maturities. The sheikdom borrowed $80 billion during a four-year construction boom.

Kajima, Japan’s largest publicly traded construction company, lost 16 percent to 162 yen in the week. Japan’s contractors may lose “tens of billions of yen” should they fail to receive revenue from projects, Hiroki Kawashima, an analyst at Daiwa Securities, said in a report on Nov. 27.

Leighton Holdings Ltd., Australia’s biggest construction company, fell 4.2 percent to A$34.77 in Sydney. The company said it’s confident of recovering money owed it in Dubai through its ownership of a 45 percent stake in Al Habtoor Engineering.

Woori Finance Holdings Co. sank 19 percent to 13,300 won in Seoul, the steepest decline in the MSCI Asia Pacific Index. South Korean financial companies had a combined $32 million in loans and investments associated with Dubai World and its property unit at the end of September, according to the country’s financial regulator.

Turning Point?

“It is too early to say that this event on its own will prove to be a turning point in the markets, but it does serve as a reminder that dislocations remain in the financial system globally,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors need to remain ever vigilant regarding risk.”

Bank of China slumped 13 percent to HK$4.13 after saying it’s studying “various options” to replenish capital. The company advanced the most new loans among Chinese lenders in the first nine months, and Goldman Sachs Group Inc. said possible capital raisings could create a “sector overhang.” In Shanghai, Industrial & Commercial Bank of China Ltd. retreated 5.5 percent to 5.18 yuan.

China’s five largest banks submitted preliminary plans for raising capital to the industry regulator, according to four people with knowledge of the matter. The nation’s 11 largest publicly traded banks may need to raise about 300 billion yuan ($43.9 billion) by selling shares and bonds to ensure they have adequate capital for continued loan growth, BNP Paribas SA said in a report on Nov. 20.

Share Sales

“Should so many big banks propose to raise capital, that will be a big blow to investors’ confidence as it will hurt the market’s liquidity,” Li Jun, a strategist at Central China Securities Holdings Co., said in Shanghai.

Sumitomo Mitsui Financial Group Inc., Japan’s second- largest bank by market value, fell 6.9 percent in the week to 2,620 yen as the Nikkei newspaper said banks are preparing a new round of share sales. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, lost 5.7 percent to 444 yen. The two banks are among those with the weakest capital, according to S&P analysis this week.

Sony retreated 6 percent to 2,265 yen, as the stronger yen threatened to reduce the value of overseas sales at Japanese companies when converted into their home currency. Pioneer Corp., the maker of car-navigation systems and audio equipment, tumbled 12 percent to 221 yen.

Santos fell 4.6 percent to A$14.33. Crude oil tumbled about 5 percent during the Asian trading week amid concern the pace of a recovery in demand will stall in the U.S., the biggest energy- consuming nation.

In Hong Kong, PetroChina Co., China’s largest oil producer, dropped 5.8 percent to HK$9.38. Cnooc Ltd., China’s largest offshore oil producer, lost 6.2 percent to HK$11.78.