Asian Stocks Fall on Japan Policy Concern, China Manufacturing

June 1 (Bloomberg) -- Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008, as investors speculated over the future of Japan’s prime minister and Chinese manufacturing growth slowed.

Sony Corp., which gets 69 percent of its sales outside Japan, sank 1.9 percent as a stronger yen threatened to hurt the value of overseas revenue. Anhui Conch Cement Co. dropped 2.7 percent in Shanghai after purchasing managers’ indexes showed China’s manufacturing industry grew at a slower pace in May. Hitachi Ltd., Japan’s No. 3 company by revenue, slumped 3.8 percent after the Financial Times cited the company’s president as saying it’s affected by Europe’s debt crisis.

The MSCI Asia Pacific Index sank 0.8 percent to 112.61 as of 1:17 p.m. in Tokyo, snapping a four-day advance. The gauge slumped 9.8 percent last month, the most since October 2008 on mounting concern that budget deficits in Europe and Chinese measures to control property prices will hurt the global economy.

“People are becoming aware of slowing momentum in the global economy,” said Hiroshi Morikawa, a strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. “Political instability will hinder Japan’s ability to react to a crisis in these turbulent times.”

Japan’s Nikkei 225 Stock Average lost 0.7 percent before a meeting between Prime Minister Yukio Hatoyama and Ichiro Ozawa, secretary-general of the ruling party, to discuss the party’s future. Hatoyama pledged “appropriate” action in the face of plunging approval ratings.

U.S. Futures Fall

China’s Shanghai Composite Index slumped 1 percent and Hong Kong’s Hang Seng Index lost 0.6 percent. Australia’s S&P/ASX 200 Index dropped 0.6 percent, while the Kospi Index declined 0.4 percent in Seoul.

Futures on the Standard & Poor’s 500 Index fell 0.7 percent, signaling a decline in U.S. markets when they resume trading today after a holiday yesterday.

Exporters in Japan declined as the yen strengthened to 111.33 per euro today from 112.59 at the 3 p.m. close of stock trading in Tokyo yesterday, while appreciating to 90.89 per dollar from 91.52.

Sony dropped 1.6 percent to 2,770 yen. Toyota Motor Corp., which gets 71 percent of its revenue outside Japan, lost 0.9 percent to 3,250 yen. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated.

Japanese stocks fell after Prime Minister Hatoyama said he will consider his political future and do “what’s best for the people of Japan.” Polls showed four in five voters want him to step down six weeks before mid-term elections.

Low Valuations

“Political turmoil may make some investors refrain from buying stocks,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “There’s also risk in selling stocks, considering the earnings recovery and relatively low valuations.”

The MSCI Asia Pacific Index has lost 13 percent from its high this year on April 15 amid concern measures to contain mounting government deficits in Europe will hurt the region’s economy, denting global growth in the process. The slump has dragged down the average price of stocks in the MSCI gauge to 14.4 times estimated earnings, near the lowest level since January 2009.

Hitachi, whose products range from rice cookers to nuclear power plants, slumped 3.8 percent to 358 yen. President Hiroaki Nakanishi said the “financial confusion in Europe is affecting various parts of our business,” the Financial Times reported, citing an interview. Hitachi yesterday set a sales target of 10.5 trillion yen ($115 billion) for the year ending March 2013.

Purchasing Managers

Anhui Conch, China’s biggest cement maker, lost 2.7 percent to 34.25 yuan. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, sank 1.4 percent to 6.26 yuan.

The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said today. That was less than the median 54.5 estimate in a Bloomberg News economist survey. Readings above 50 indicate an expansion. A separate purchasing managers’ index from HSBC Holdings Plc and Markit Economics fell to 52.7 in May from 55.2 in April.

Chinese property stocks declined after the Shanghai Securities News reported that real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70 percent from April.

Poly Real Estate Group Co, China’s second-largest developer by market value, slumped 3.5 percent to 10.66 yuan. Gemdale Corp., the fourth-largest, fell 2.5 percent to 6.28 yuan.

Roubini Forecast

The Shanghai Composite Index has tumbled 22 percent this year as the People’s Bank of China raised bank reserve requirements three times to help cool property markets.

Chinese economic growth may slow to an annual rate of 7 percent to 8 percent by the end of the year or early 2011, from 11.9 percent in the first quarter of 2010, Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked, said in Sao Paulo yesterday.

A gauge of utilities in the MSCI Asia Pacific Index gained the most of 10 industry groups after Goldman Sachs Group Inc. upgraded its recommendation on Japan’s power industry to “neutral” from “cautious.”

Tokyo Electric Power Co. jumped 4.2 percent to 2,352 yen after Goldman Sachs boosted its rating on the stock to “buy” from “neutral.” Chugoku Electric Power Co. rose 1.2 percent to 1,740 yen.