Asian Stocks Fall From Seven-Month High on Valuation Concerns

May 12 (Bloomberg) -- Asian stocks fell from a seven-month high, led by banks and mining companies, as investors sold shares trading at their most expensive valuations in five years.

Mitsubishi UFJ Financial Group Inc., which soared 26 percent in the past three days, dropped 4.8 percent. Fortescue Metals Group Ltd., Australia’s third-largest iron ore producer, slumped 4.5 percent after JPMorgan Chase & Co. cut its recommendation on the stock. Sony Corp., which gets a quarter of its sales from the U.S., retreated 2.4 percent as the yen climbed versus the dollar.

“Of course its time for a correction, that’s the way markets work,” investor Jim Rogers said in an interview with Bloomberg Television. “I don’t see the stock market as a great place to be for the next two to three years, maybe for the next decade.”

The MSCI Asia Pacific Index fell 1.3 percent to 97.25 as of 1:47 p.m. in Tokyo, snapping a six-day advance. Optimism the global economy is recovering drove the gauge to the highest since Oct. 7 yesterday. The average valuation of its constituent members is 28 times trailing earnings, a level not seen since March 2004, according to data compiled by Bloomberg.

Japan’s Nikkei 225 Stock Average retreated 1 percent to 9,356.16. The measure’s price-book ratio climbed to 1.14 yesterday, the highest level since Oct. 7, from a record low of 0.81 on March 9, according to gauge compiler Nikkei Inc.

Most Asian markets declined except in China, India and Vietnam. South Korea’s Kospi Index lost 0.8 percent as the nation’s central bank left its benchmark interest rate unchanged at 2 percent.

Technical Indicators

Sumitomo Heavy Industries Ltd., Japan’s largest maker of plastic-injection-molding gear, slumped 9 percent after projecting lower earnings. Asahi Glass Co. climbed 11 percent after Nomura Holdings Inc. recommended buying the shares. NCsoft Corp., South Korea’s biggest online-game maker, surged 13 percent as brokerages raised their share-price targets.

Futures on the U.S. Standard & Poor’s 500 Index lost 0.5 percent. The gauge fell 2.2 percent in New York yesterday, retreating from the most expensive level in seven months.

“Technical indicators suggest the market is overheating and investors are ready to take profit after recent gains,” said Toshio Sumitani, a strategist at Tokai Tokyo Securities Co.

The MSCI Asia Pacific Index’s relative strength index, which measures how rapidly prices have risen or fallen, climbed to 78 yesterday, above the threshold of 70 that some investors use as a signal to sell.

Mitsubishi UFJ, Japan’s largest publicly traded bank, retreated 4.8 percent to 642 yen. Yuanta Financial Holding Co., the owner of Taiwan’s largest securities brokerage, slumped 6.9 percent to NT$23.55 in Taipei. Commonwealth Bank of Australia, the nation’s largest lender, fell 1 percent to A$36.30.

Mounting Losses

Finance companies accounted for 43 percent of the MSCI Asia Pacific Index’s drop today. The shares are the second-worst performing of the benchmark measure’s 10 industry groups in the past year. The deepening credit crisis has caused losses at the biggest financial institutions to swell to more than $1.4 trillion since the start of 2007.

HSBC Holdings Plc, Europe’s largest bank, said yesterday it will be a “tough” year in 2009 as bad loans increase and the economy deteriorates. Former Oppenheimer & Co. analyst Meredith Whitney said in an interview with CNBC yesterday profits at U.S. banks will miss consensus estimates in 2010 and 2011, adding shares of lenders are “grossly overvalued.”

HSBC added 1.1 percent to HK$66.85 in Hong Kong.

Fortescue dropped 4.6 percent to A$2.93. The stock was cut to “underweight” from “neutral” at JPMorgan, which cited weaker-than-expected production and higher costs.

Metal Prices

BHP Billiton, the world’s largest mining company, slumped 2.6 percent to A$34.37. Mitsui & Co., Japan’s second-largest trading company, declined 3.3 percent to 1,156 yen. A measure of six primary metals traded in London fell 1.8 percent yesterday, the sharpest drop since April 28. Copper futures in New York dropped 2.7 percent.

Sony lost 2.4 percent to 2,630 yen as the yen strengthened against the dollar to as much as 97.14 today, a level not seen since April 29, from 98.43 at the 3 p.m. close of stock trading in Tokyo.

Mazda Motor Corp., Japan’s fifth-largest automaker, lost 5 percent to 247 yen. Kyodo News said the company may forecast an operating loss of more than 25 billion yen ($257 million) for the current fiscal year due to slumping vehicle sales.

Toyota Motor Corp., the world’s largest automaker, dropped 1.6 percent to 3,730 yen after the company said it’s idling three of 11 production lines at a domestic engine plant in anticipation of lower sales.

Brokerage Upgrades

Sumitomo Heavy slumped 9 percent to 413 yen. Net income for the year ending March 2010 will decrease by 74 percent to 3.5 billion yen ($35.5 million), Sumitomo Heavy said in a release to the exchange yesterday. That missed the median profit estimate of 10.9 billion yen by analysts surveyed by Bloomberg.

Asahi Glass jumped 11 percent to 650 yen, the highest since Oct. 21, after Nomura raised the stock to “buy,” citing a recovery in demand for liquid crystal glass substrates.

NCsoft climbed 13 percent to 177,000 won. Credit Suisse Group AG increased its share-price estimate by 18 percent, citing higher-than-expected first-quarter earnings. Goldman Sachs Group Inc. raised its stock price estimate by 7.7 percent.