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Asian stocks fall on concern of higher interest rates

Asian stocks declined this week amid concern interest rates in the US and China may rise sooner than some investors anticipated, slowing earnings growth. BHP Billiton and Nissan Motor Co fell.

The Morgan Stanley Capital International Asia-Pacific Index sank 2.5 percent, its first weekly decline in five, after better-than-expected US and Chinese economic reports prompted speculation of interest-rate increases to cool expansion. All benchmark indexes in the region slid, except for those in Taiwan, India, Thailand and Japan's Topix index.

"Markets have to move back to an environment where rates should be higher and that's why markets are trading down," said Bich Pham, who helps manage US$600 million at TAL Global Asset Management Ltd, in Hong Kong. "Markets were trading on the expectation that interest rates will remain low until the end of the year."

MSCI's Asia-Pacific Index gained 61 percent in the past year, boosted by exporters such as Taiwan Semiconductor Manufacturing Co (台積電), as the US Federal Reserve cut its key interest rate to its lowest in 45 years to stimulate spending and company earnings.

Japan's Nikkei 225 Stock Average lost 0.6 percent this week to 11,824.56, its first decline in five weeks. The Topix gained 0.5 percent. Singapore's Straits Times Index fell 2.3 percent.

The Hang Seng China Enterprises Index, which tracks 37 Chinese companies, or H shares, slid 6.8 percent. Jiangxi Copper Co, China's largest producer of the metal, slumped 13 percent.

Manufacturing surged more than expected in the Philadelphia and New York regions this month and companies increased hiring to keep up with orders, Federal Reserve surveys showed yesterday.

A factory index by the Buffalo branch of the New York Fed climbed to 36.1 this month from 25.3 in March. The Fed Bank of Philadelphia's April general economic index rose to 32.5 from 24.2 in March.

The two manufacturing gauges come after government reports earlier this week showed that prices paid by US consumers in March rose 0.5 percent, while retail sales for the same month gained 1.8 percent, the biggest increase in a year. All those reports beat the median expectations of economists surveyed by Bloomberg News.

Still, Alfred Broaddus, a non-voting member this year of the Fed's monetary policy-setting committee, said yesterday the central bank needs "at least a little more confirmation of the apparent strength in the economy" before addressing interest rates.

Companies that do business in the US declined. Australia's BHP Billiton, the world's largest miner, shed 1.9 percent to A$12.12. It gets more than one-tenth of its sales in North America.

Nissan, Japan's third-largest automaker, lost 2.3 percent to ¥1,172. Overseas sales account for two-thirds of its revenue.

In the US, the Standard & Poor's 500 Index lost 0.4 percent for the week, the fifth drop in six weeks. The Dow Jones Industrial Average rose 0.1 percent, while the NASDAQ Composite Index shed 2.8 percent.

Banks across the region declined on concern that Asian central banks may follow the lead of their US and Chinese peers in boosting borrowing costs, which will dent mortgage and commercial lending.

HSBC Holdings Plc, the world's second-biggest bank by market value, fell 3 percent to HK$115 in Hong Kong. The London-based lender controls two Hong Kong banks. BOC (Hong Kong) Holdings Ltd, a Bank of China unit, lost 2.7 percent to HK$14.65.

Hong Kong's Hang Seng Index slid 3.5 percent to 12,458.38.

Movements in Hong Kong's interest rates typically track US credit policy because the local currency is pegged to the dollar.

"As soon as the Fed starts to raise interest rates, the Asian economies will have to follow,'' said Yuktai Chan, who helps manage about US$3 billion in Asia, excluding Japan, at Threadneedle Asset Management in London. Rising rates will "choke off consumer demand and credit-card spending." National Australia Bank Ltd, the country's largest lender, slid 5.4 percent to A$29.71. The company yesterday said first-half profit before some items fell as much as 5 percent.

A report yesterday on Chinese gross domestic product in the first quarter also topped some economists' forecasts. China said that too much investment in some industries was causing "great pressure" for inflation.

China's broadest measure of money supply rose in March, which the government may take as a cue to introduce measures to curb growth, such as raising interest rates, according to Dong Tao, an economist at Credit Suisse First Boston.

Hong Kong's H-share index surged 152 percent last year amid optimism of economic and profit growth in China. It dropped 6.1 percent this year.

Jiangxi slid 13 percent to HK$4.10 this week. Aluminum Corp of China, the country's largest aluminum producer, fell 11 percent to HK$6.20. Commodities-related stocks slumped on concern slower growth will dent demand. China Telecom Corp, the nation's biggest fixed-line carrier, lost 9.7 percent to HK$2.55.

Japanese companies that do business in China such as Daikin Industries Ltd. declined. Daikin, which ships its air conditioners to China, lost 1.1 percent to ¥2,625. Komatsu Ltd, the world's second-largest maker of construction machinery, shed 1.8 percent to ¥654. Increased demand in China helped Komatsu report a fivefold surge in fiscal first-half profit.

"From the news out of China, too much of a good thing can be bad," said James Cheng, who helps manage the equivalent of US$300 million at Asia Strategic Asset Management Ltd. "The pressure's building up" for rate increases.
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