Asian stocks fell this week, dragging down the benchmark index by most since August, on speculation China will raise interest rates after inflation accelerated to its fastest pace in two years.
“There is no doubt that China is on its way to further tightening,” said Danny Yan, a Hong Kong-based fund manager at Taifook Asset Management Ltd, which oversees about US$400 million. “Food inflation in China is getting out of control. The whole world is flooded with capital that has nowhere to go. Capital inflows are a serious problem facing China. To tackle the problem, tightening liquidity control seems unavoidable.”
The MSCI Asia-Pacific Index declined 2 percent to 132.13 this week, the biggest drop since the five days ended Aug. 13. The measure rose about 12 percent this year as of last week on speculation corporate profits will weather Europe’s debt crisis, China’s steps to curb property price gains and concern about the pace of US economic growth. Shares in the gauge trade at an average of about 14.5 times estimated earnings, close to the highest level since June.
China’s Shanghai Composite Index declined 5.9 percent. Hong Kong’s Hang Seng Index slipped 2.6 percent, South Korea’s KOSPI fell 1.3 percent. Australia’s S&P/ASX 200 Index dropped 2.3 percent. Japan’s Nikkei 225 Stock Average climbed 1 percent.
The People’s Bank of China could raise interest rates within weeks after inflation accelerated to the fastest pace in 2 years last month, a Bloomberg News survey of economists on Friday showed. The central bank on Wednesday ordered lenders to increase the amount of money they set aside as reserves effective Nov. 16.
A record expansion in lending has added to concern that China’s inflation, now centered on food costs, will broaden. Last month, new lending was a more-than-forecast 587.7 billion yuan (US$89 billion), a central bank report on Thursday showed.
Taiwan’s benchmark TAIEX closed down 1.43 percent on Friday on renewed worries over the global economy after the latest European debt problems surfaced in Ireland, dealers said.
The weighted index fell 120.90 points to 8,316.05, after moving between 8,309.36 and 8,416.35, on turnover of NT$98.03 billion (US$3.25 billion).
The textile sector suffered the steepest decline, down 2.7 percent. Cement stocks shed 2.3 percent, financial issues fell 2.2 percent, plastics and chemicals dropped 2.1 percent and construction stocks fell 1.6 percent. The paper and pulp sector closed down 1.5 percent, foodstuffs fell 1.3 percent and machinery and electronic shares lost 1 percent.
“Today’s selling focused on large-cap stocks,” TLG Asset Management (台壽保投信) analyst Arch Shih (施博元) said. “I therefore suspect that the selling largely came from foreign institutional investors.”
Investors feared Wall Street will encounter more volatility on uncertainty over the global economy, and that Asian markets are likely to follow suit, Shih said.
He said the European debt problems served as a good excuse for foreign investors in the local bourse to pocket recent strong gains, in particular posted by old economy stocks which had been boosted by a rising NT dollar.
“They are preparing funds to meet possible redemption needs back home once the markets in the US fall further,” he said.
In other markets on Friday:
Manila closed 1.63 percent, or 67.73 points lower from Thursday at 4,076.68 as investors took profits for a sixth straight session.
Wellington closed down 0.63 percent, or 20.92 points, from Thursday at 3310.58.
Mumbai fell 2.1 percent, or 432.2 points, from Thursday to 20,156.89, retracing its steps from record highs due to the eurozone debt worries.
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