Category Archives: Asia

Tepco Falls 11% on Renewed Equity Fears

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By Judy Lam

Tokyo Electric Power is down 11% at ¥231 ($3.02) on heavy volume after hitting its lowest intraday level since June 14 (¥214).

The move follows a Yomiuri Shimbun report that the head of a new government-backed body set up to help the utility make compensation payments indicated its intention to place the company under public administration if it ends up injecting funds to pay for decommissioning of the firm’s reactors.

Market players are concerned that such a move would entail cancellation of the company’s equity — or at least severe value erosion.

Public assistance is seen as vital for the survival of Tepco, which faces potentially trillions of yen in compensation claims from people affected by the nuclear disaster at the Fukushima Daiichi plant.

Takehiko Sugiyama, head of the government body, also echoed sentiment expressed by Trade Minister Yukio Edano, who on Monday reiterated the need for aggressive cost-cutting to win public support for a taxpayer bailout.

Asian Markets Dyspeptic After Lunch

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Asian markets are now experiencing a serious case of post-lunch indigestion. The morning opened predictably lower with no good news on a euro bailout out of Washington. But it took until the lunch break in many markets for the slide to pick up in earnest.

Reuters

Heading into the afternoon Hong Kong/Beijing/Singapore time, the Hang Seng is down 3% to 17132. Felt like just the other day that we blew below 18000. And we’d be right because that was Thursday. It’s now trading as low as it did in May 2009, when the word on the Street was about “green shoots” of recovery.

The biggest stock drop Monday so far is Thailand, off nearly 8%, with pain across the board. The biggest component on the SET Index, oil and gas maker PTT PCL is off 10%. The big Thai banks are also off sharply. Krung Thai Bank is nearly 11% lower. Siam Commercial Bank and Kasikornbank down 6%. Even food maker Charoen Pokphand Foods is off 11%. Don’t people have to eat even during a financial crisis?

That takes us to real assets. You know, gold, silver and oil. They are getting hammered as well. Brent Crude traded in London is off 1.7% to $102, close to the $100 level that would make a lot of economies happy for the inflation relief. Gold is down 3.5% to 1578 and silver has plunged 11.5% to 26.63 and ounce.

And currencies are following course. The euro, is off another 1% to $1.337. The commodity sensitive Australian dollar is down more than 2% to $0.9663, making parity with the U.S. dollar feel very much like the distant past. The Indian rupee seems intent on hitting 50 to the dollar, trading at 49.69. And the Indonesian rupiah has really blown up, with the dollar rallying more than 3% to 9046 rupiah.

Thai Shares Down 8.3%, 13-Month Low

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Thai shares dived more than 8.0%, hitting a 13-month low as investors continue to dump their holdings amid mounting fears about global economic and financial conditions.

As of 0509 GMT, the benchmark Stock Exchange of Thailand Index was down 8.3% in moderate trade at 878.25 , but was off the day’s low of 877.08. The intraday fall of 8.5% marked the biggest percentage loss since October 2008, when the market was hit by jitters over the then global financial crisis and domestic political turmoil.

“Investors dumped shares in panic as they have lost confidence,” said Prapas Tonpibulsak, Krungsri Asset’s chief investment officer. ”In our view, the sharp fall presents an investment opportunity, but we’re not in rush to buy beaten-down stocks now as it’s likely to get them at cheaper prices.”

The selloff in Thailand mirrored similar big drops in other emerging-country bourses like Indonesia and the Philippines, as foreigners took flight on fears that a potential global recession will severely hurt growth in Asia.

“Given the magnitude of the fall, it is very well possible that we might see the circuit breaker being triggered. After such massive falls today, we would certainly expect some margin calls that will add to selling pressures,” said Bualuang Securities strategist Pongrat Ratanatawanananda.

The Stock Exchange of Thailand will halt trade for half an hour should the SET Index fall 10%, a process known as a circuit breaker. This allows investors time to reassess market situations.

Portfolio outflows also pushed up the U.S. dollar to 31.08 baht from 30.85 in late Asian trade Friday.

Those suffering from the selloff were energy conglomerate PTT, down 7.9% at 267 baht; coal miner Banpu is down 10.2% at 526 baht and Siam Cement is down 6.35 at 266 baht.

–Phisanu Phromchanya and Oranan Paweewun

Hongguo Falls 22% in Hong Kong Debut

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By Yvonne Lee

Shares of Chinese shoemaker and retailer Hongguo International Holdings Ltd.  fell as much as 22% on their debut on Hong Kong’s stock exchange Friday amid widespread losses following a sharp decline on Wall Street because of concerns about the global economy.

Nanjing, China-based Hongguo, which raised US$148 million in its initial public offering, opened at HK$2.28, slightly below its IPO price of HK$2.30, before falling to an intraday low of HK$1.80.

Friday morning, the company’s shares were down 12.6% at HK$2.01. The benchmark Hang Seng Index was down 1.8% at 17585.

Recent stock market weakness had led Hongguo to price its shares at the bottom of the indicative price range.

Hongguo wasn’t the only victim of the market turbulence. Chinese construction machinery company Sany Heavy Industry Co. Ltd. suspended a planned US$3.3 billion Hong Kong offering Thursday.

Sany’s IPO — orders had been taken from investors for four days already when the deal was suspended — is the biggest deal in the roadshow stage in Asia at the moment, and its collapse raises questions about the appetite for fresh offerings.

Metals Extend Losses In Asia

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By Arpan Mukherjee

Base metals were extending overnight losses Friday in Asia as risk aversion weighed on investor sentiment, while precious metals came off lows due to safe-haven inflows.

Fears of the global economy tipping back into recession triggered selling in risk assets, with the selloffs threatening to become disorderly.

London Metal Exchange three-month copper fell more than 2% to a low of $7,505 a metric ton early in the session, while nickel shed 4.6% to $18,000 a ton.

“Over the next few days, the macroeconomic picture is likely to remain a little bit negative unless the [International Monetary Fund] does something that helps to calm the panic that was building yesterday,” said a base metals trader in Australia.

Officials and people familiar with the situation said that world financial leaders will meet this weekend to consider bulking up IMF resources, in order to give the lender enhanced crisis-fighting powers.

Traders said weak Chinese manufacturing data and European macroeconomic concerns, coupled with a gloomy economic outlook from the U.S. Federal Reserve, were rattling investors and sparking a broad selloff in risk assets, including stocks.

“The selloff in risk assets threatens to become disorderly,” ING economist Tim Condon said.

“In copper, we will see some Chinese buying on dips, but they are not going to rush,” the trader in Australia said, adding that Chinese investors may stand back a little bit and see whether the metal finds a base in the next day or two.

LME three-month copper was at $7,540/ton, down $133, and nickel was $717 lower at $18,158/ton.

Precious metals were rebounding due to safe-haven demand, following aggressive selling Thursday as investors cashed out profitable positions to meet margin calls in other markets.

Spot gold gained more than 1% to touch $1,755.22 a high of troy ounce early in the session.

“Gold is likely to see some safe-haven inflows once the short-to-medium term margin payments are made,” IG Markets strategist Ben Potter said.

He said a weaker euro against the dollar was helping to push prices higher. Precious metals usually move inversely to the dollar.

The euro was at $1.3523 compared with $1.3464 late Thursday in New York. The pair touched $1.3566 earlier in the session.

Silver, platinum and palladium bore the brunt of Thursday’s selloff amid the worsening economic outlook, as they have some industrial applications.

At 0232 GMT, spot gold was up $10.20 at $1,746.40/oz.

Silver gained 31 cents to $36.15/oz, platinum rose $10 to $1,692/oz, while palladium lost $4 to trade at $643/oz.

A Recent History of Indonesian Stock Plunges

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Indonesian stocks sunk hard Thursday, down nearly 9%. That got us to thinking, when it comes to Indonesia, is 9% a lot?

Yes and no. Thursday’s plunge was only the seventh-worst drop in the past five years, which is to say Indonesia a very volatile place to trade stocks.

But the other thing we noticed is that most of those big drops were clustered during the financial crisis. Two of the three biggest drops were 14 days apart during the post-Lehman bankruptcy insanity in October 2008. Two of the other top 10 happened within a few weeks in March and April 2008, another notoriously volatile period.

If the current global selloff does turn out to be a  repeat of 2008, today’s disaster in Jakarta might just repeat itself in the coming weeks.

Indonesian Shares Fall Sharply

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By Edhi Pranasidhi

Indonesian shares ended sharply lower Thursday as foreign funds reduced their holdings amid concerns that a weak rupiah could boost imported inflation and hurt corporate earnings and the economy, traders said.

The Indonesia Stock Exchange’s main index fell 8.9%, the biggest single-day percentage drops since Nov. 21, 2008.  The Jakarta Composite Index fell 328 points to a seven-month-low of 3369.143. Trading  volumes were relatively low at 7.3 trillion rupiah ($810.3 million).

Earlier in the day, an exchange official said it was planning to propose a temporary suspension of trade if the index fell 10%.

Foreigners were net sellers of 1.7 trillion rupiah worth of shares. Foreigners have been net sellers of almost 5 trillion rupiah ($569 million) worth of stock so far this week.

The rupiah has fallen more than 4% against the dollar since the start of the month. It was recently trading at 8,780 rupiah to a dollar.

“The sharp sell-off by foreign funds, however, could provide a good opportunity for long term-investors to buy Indonesian shares,” said Chandra Pasaribu, vice president for equity research at  Danareksa Sekuritas.

Korea Wins, Japan Loses in Currency Dance

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Associated Press

The South Korean won’s slide the last two weeks might feel disconcerting, but it’s likely great news for Korea’s massive export engine as a cheap currency makes exports more competitive.  It’s also yet another punch in the gut for Korea’s big export rival, Japan.

While everyone is focused on the won’s slide versus the dollar (the dollar has risen 8.5% against the won in the past month, including another 2.5% Thursday), the more important figure to watch is the won’s level with the yen. After all, Korea competes in many of the same areas as Japan. Think Hyundai vs. Honda, Samsung vs. Sony.

Nomura economist Young Sun Kwon notes this morning that the won is approaching its low against the yen reached in 2008 in the days after the Lehman Brothers bankruptcy.  One Japanese yen is buying 15.34 won Thursday, compared with 16.4 on March 3, 2009. The yen is up 10% this year against the won.

The latest slide is part of a much longer-term trend of won weakness versus the yen. The Japanese currency has been strong across the board since the financial crisis intensified in 2008, a huge frustration to Japan’s export competitiveness.  The yen-won numbers are remarkable. Since the start of 2008, the yen is 80% stronger versus the won in nominal terms.

Mr. Kwon figures the latest slide will provide a boost to Korea’s exporters and to the country’s tourism sector. From his research note Thursday:

“Korean exporters should enjoy almost the same level of price competitiveness compared to Japanese manufactures as they did in 2008-09. Many Korean manufactures are globally competitive in technology and marketing. There are also income effects: in February 2009, the weak [won versus the yen] caused a surge in Japanese visitor arrivals to Korea, up 72%”.

Nomura is already expecting Korea’s 2012 GDP to hit 5% and figures if the won keeps falling, it may revise that figure upward.

Authorities Prop Up Won Amid Rout

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For years Korean officials have rebutted accusations that they are artificially keeping the won cheap to drive export growth. Their concern is excessive foreign exchange volatility, they say, and they’re proving their intent to walk the talk in recent days by trying to prop up the currency in the middle of a global rout against risky assets.

The U.S. dollar was quoted as high as 1,156.50 won in Tuesday trade–up roughly 10% against the won since the beginning of August–as the continuing euro-zone crisis pushed investors toward safe-haven assets. Currency traders told Dow Jones Newswires that the Bank of Korea was seen selling dollars on multiple occasions Tuesday to try to slow the local currency’s decline.

While the argument for how a weaker won helps export-dependent Korea is relatively simple to grasp, there are also good reasons why a steep and sudden fall in the currency is problematic.

Continue reading at Korea Real Time.

Hong Kong Dollar Doubters Rush In

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Hedge fund manager Bill Ackman created a stir this week with a call to go long on the Hong Kong dollar, a currency that has been linked in a in a very tight range near 7.8 to the U.S. dollar since 1983.

Why is it time for change? He thinks Hong Kong authorities will eventually relent and let its currency strengthen under economic and social pressure. By tying the Hong Kong dollar to the U.S. dollar, Hong Kong imports U.S. monetary policy, which is super loose and set to stay there for at least another two years, as the Fed recently signaled.

Meanwhile, inflation in Hong Kong hit a scary 7.9% in July and real-estate prices are above the pre-1997 Asian financial crisis bubble-of-all-bubbles peak. Mr. Ackman figures the inflation will exacerbate social tensions, and with a change in Hong Kong’s chief executive set for March 2012, the new government will be forced to let the Hong Kong dollar strengthen around 30%. A stronger currency would make all the imported goods Hong Kong relies on cheaper, ameliorating the inflation pressure.

Mr. Ackman’s doubters quickly chimed in.

Tom Holland, columnist at the South China Morning Post, noted (subscription required) that such a repegging would be painful for Hong Kong’s banks and investors.  The local banking system has a surplus of deposits, some of which it converts to U.S. dollars and lends out abroad. A 30% strengthening of the Hong Kong dollar would leave a HK$60 billion (US$7.7 billion) “holeâ€� in the banking system, he writes. And Hong Kong residents hold a substantial amount of foreign currencies in their accounts. A revaluation would cut into the value of those holdings. Then there is the nearly US$1 trillion portfolio of investments Hong Kongers hold abroad.  A quick repegging would wipe out a proportional amount of that value in local currency terms.

Another skeptical voice, the analysts at research house GaveKal note that repegging would just encourage more people like Mr. Ackman to pile into the Hong Kong dollar, making defending the new level even harder. Because Hong Kong is so linked to the mainland economy, investors would think the strengthening was a precursor to Hong Kong delinking to the dollar and marrying the Chinese yuan. That would cause a massive wave of capital that Hong Kong couldn’t absorb.

“It is simply too risky because it could invite massive speculative flows,â€� GaveKal writes.  There’s also the character of Hong Kong’s powerful bureaucracy:  “Civil servants do not like to rock the boat in such a risky fashion.â€�

Doubters or not, in the end, Mr. Ackman’s call is in some ways an easy one to make. There’s very little downside. As Hong Kong proved during the Asian Financial Crisis, it will defend to the death against Hong Kong dollar weakness.

And unlike the yuan, which many also say is undervalued and destined to rise, the Hong Kong dollar is among the most liquid and traded currencies in the world, with none of Beijing’s restrictions or capital controls to worry about. If you have some U.S. dollars lying around earning no interest, you might as well convert them to the Hong Kong version and hope Mr. Ackman’s theory comes true. The worst-case scenario: You lose a bit on the currency-exchange fees when you give up and bring your money back into greenbacks.

Follow Alex Frangos on Twitter: @alexfrangos

Esprit Plunges As Much As 20%

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By Chester Yung and Robert Li

Blue-chip Esprit Holdings Ltd. plunged as much as 20% Friday due to a slew of ratings downgrades after the company posted a bigger-than-expected drop in its full-year net profit, and analysts expect the retailer’s earnings to remain under pressure for the next two to three years.

On Friday morning, Esprit’s Hong Kong-listed shares were down 20% at HK$12.06, adding to its 17.6% drop Thursday. The Hang Seng Index was up 2.3%.

The decline comes after Credit Suisse, Citigroup, UOB KayHian and J.P. Morgan cut Esprit’s target share price due to its disappointing results.

Esprit, which competes globally with Hennes & Mauritz AB and Zara’s parent company, Inditex SA, said Thursday its net profit for the 12 months ended June 30 dropped 98% from the year before, weighed by a huge provision for store closures.

The company said it will focus on nurturing its business in profitable markets and close 80 unprofitable stores in Europe and the Asia-Pacific region, including all its directly managed retail stores in Spain, Denmark and Sweden. The company also plans to shut 93 directly managed retail stores in North America in order to avoid further losses.

It also said it will invest HK$18.5 billion in the next four fiscal years to rebuild its brand. However, that could be a challenge as its market capitalization has now shrunk to less than HK$16 billion.

“The huge operating and capital expenditure over the next four years caught us by surprise,� UOB KayHian said.

In a report, J.P. Morgan said it was “very surprised that management did not recognize the seriousness of the brand problem in early 2010,� meaning the company must now significantly increase its investment to address the situation.

The bank said Esprit’s brand-revitalization plan will likely put pressure on its earnings for the next two to three years. J.P. Morgan cut its forecast for Esprit’s net profit by 90% for the company’s 2012 fiscal year and 70% for fiscal 2013.

“We also think it is too early to make a call on the brand’s revival,� J.P. Morgan said.

Mainland Chinese Developers Tumble

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Mainland developers are not only reversing early gains but are falling more now, with blue-chip developer China Overseas Land tumbling 5.5% to HK$13.52 versus an intraday high of HK$14.62, adding to its 7.5% fall Monday. Other big names on the decline include China Resources Land, Shimao Property and Evergrande, by more than 5.0%, while the Hang Seng is down 0.2%.

“This year’s ‘Golden September and Silver October’ is getting off to a rough start,� says Daniel So, an analyst at SHK Financial. He adds that the weakness in developer stocks will in turn pressure related sector such as construction materials and he doesn’t recommend bargain-hunting now.

Xinyi Glass tumbles 7.3% to HK$3.42, China National Building Material is down 2.7% at HK$8.81, marking a 6.5% retreat from day’s high of HK$9.42.

Read the Asian stock wrap for more on the region.
–Robert Li