Asia Stocks Swing Between Gain, Losses as Moody’s Questions China Bad Debt

By Anna Kitanaka and Shani Raja - Jul 5, 2011

Asian stocks swung between gains and losses as banks declined in China after Moody’s Investors Service said the potential scale of problem loans at lenders is greater than had been anticipated, offsetting gains by Tokyo Electric Power Co.

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market capitalization, fell 0.7 percent in Hong Kong. Tokyo Electric jumped 7.1 percent after the company yesterday said its cooling system used to douse its smoldering nuclear reactors is working. 77 Bank Ltd., a Japanese lender in the Tohoku region worst hit by the March 11 tsunami, advanced 2.5 percent after Nomura Holdings Inc. said it was bullish on regional banks. Taiwan Semiconductor Manufacturing Co. led Taiwanese shares lower after the Digitimes reported the nation’s liquid-crystal display panel makers have reduced output.

“China remains at the forefront of investors’ minds given its increasingly large contribution to global growth,” said Tim Schroeders, who helps manage $1 billion in global equities as a portfolio manager at Pengana Capital Ltd. in Melbourne. “Any slowdown in the rate of growth has heightened flow-on effects to growth expectations, not only in China but globally.”

The MSCI Asia Pacific Index fell 0.1 percent to 137.07 as of 1:08 p.m. in Tokyo, reversing earlier gains of as much as 0.2 percent. A similar number of shares rose and fell on the 1,018- member gauge. Through yesterday, the gauge fell 2.6 percent from this year’s high on May 2 amid concern a slowing U.S. economy, Europe’s sovereign-debt crisis and China’s steps to curb inflation will crimp earnings.
Nikkei, Kospi

Japan’s Nikkei 225 (NKY) Stock Average was little changed after earlier rising as much as 0.3 percent and falling 0.2 percent. South Korea’s Kospi Index climbed 0.6 percent and Australia’s S&P/ASX 200 Index slipped 0.2 percent. Hong Kong’s Hang Seng index (HSI) was little changed, while China’s Shanghai Composite index fell 0.1 percent.

Futures on the Standard & Poor’s 500 Index retreated 0.2 percent today. Exchanges in the U.S. were closed for the Independence Day holiday yesterday.

Industrial & Commercial Bank slid 0.7 percent to HK$5.92. China Construction Bank Corp., the No. 2 lender by market value, sank 0.8 percent to HK$6.51, the biggest drag on the Hang Seng index. Bank of China Ltd. declined 0.3 percent to HK$3.86.

Chinese banks fell after Moody’s said in a report today the potential scale of problem loans at the lenders may be closer to its stress case than its base case. The ratings agency said it views the credit outlook for the Chinese banking system as potentially turning to negative.
Biggest Gain

“We conclude that the banks’ exposure to local government borrowers is greater than we anticipated,” says Yvonne Zhang, a Moody’s vice president and one of the authors of the report.

Tokyo Electric, the utility at the center of the worst nuclear crisis in 25 years, jumped 4.6 percent to 411 yen today, its highest level since May 13. The utility’s self-contained cooling system that uses recycled water to douse smoldering reactors at its crippled nuclear plant is working for a third day after repeated stops and starts, spokesman Naoyuki Matsumoto said yesterday.

In Japan, regional banks rose after a report by Nomura said the brokerage is bullish on the local lenders. 77 Bank advanced 2.5 percent to 374 yen. Nomura said the bank was its “top pick” on improved earnings prospects. Bank of Yokohama Ltd. rose 1.5 percent to 416 yen and Fukuoka Financial Group Inc. increased 1.5 percent to 348 yen.
Banks ‘Cheap’

The regional lenders, which declined along with Japan’s major banks following the March 11 earthquake, tsunami and on- going nuclear crisis, are cheap, Nomura said in a report dated yesterday. Share prices are close to reaching the bottom, the report said.

Taiwan Semiconductor Manufacturing slumped 1 percent to NT$72.80 in Taipei, the biggest drag on the MSCI Asia Pacific Index. AU Optronics Corp., which makes thin film transistor- liquid crystal displays, dropped 4.9 percent to NT$18.30. LG Chem Ltd., which produces petrochemicals as well as industrial and electronic materials, declined 1.7 percent to 492,500 won in Seoul.

Electronic shares in Taipei and Seoul slid following a Digitimes report yesterday that Taiwanese and South Korean-based LCD panel makes have lowered output since the start of June as global demand for televisions remains weak. The cut in output may continue in July and August, Digitimes said, citing unnamed industry sources in Taiwan.

The MSCI Asia Pacific Index lost 0.4 percent this year through yesterday, compared with a gain of 6.5 percent by the Standard & Poor’s 500 and a drop of 0.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.7 times estimated earnings on average, compared with 13.5 times for the S&P 500 and 11.2 times for the Stoxx 600.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.
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