Asian stocks tumble on inflation news

By Jonathan Burgos (China Daily)
Updated: 2010-11-15 09:11
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SINGAPORE - Asian stocks fell last week, dragging down the benchmark index by the most since August, on speculation China will raise interest rates after inflation accelerated to its fastest pace in two years.

China Vanke Co, the country's biggest developer by market value, tumbled 12 percent in Shanghai. China Construction Bank Corp, the nation's second-biggest lender, declined 7 percent in Hong Kong after the central bank ordered lenders to raise their reserve ratios. Russia's United Co Rusal, the world's largest aluminum producer, slipped 3.9 percent in Hong Kong after reporting profit declined.

"There is no doubt that the central bank is on its way to further tightening," said Danny Yan, a Hong Kong-based fund manager at Taifook Asset Management, which oversees about $400 million. "Food inflation in the Chinese mainland 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 last week, the biggest drop since the five days ending Aug 13.

The measure rose about 12 percent in 2010 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.

The Shanghai Composite Index declined 5.9 percent. Hong Kong's Hang Seng Index slipped 2.6 percent, South Korea's Kospi Index 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 may raise interest rates within weeks after inflation accelerated to the fastest pace in two years in October, a Bloomberg News survey of economists on Friday showed. The central bank ordered lenders on Nov 10 to increase the amount of money they set aside as reserves from Nov 16.

China Vanke, the country's biggest developer by market value, tumbled 12 percent to 8.53 yuan in Shanghai. Poly Real Estate Group Co, the No 2 developer, plunged 13 percent to 7.3 yuan.

A record expansion in lending has added to concern that China's inflation, now centered on food costs, will broaden. In October, new lending was a more-than-forecast 587.7 billion yuan ($89 billion), a central bank report on Nov 11 showed.

Gauges of financial companies and raw material suppliers posted the biggest declines this week among the 10 industry groups on the MSCI Asia Pacific Index.

Australia & New Zealand Banking Group Ltd, Australia's third-largest lender by market value, slid 3.6 percent to A$23.22, and National Australia Bank Ltd, the nation's biggest lender to companies, fell 5.5 percent to A$24.53. The Wall Street Journal reported on Friday that the Group of 20 ministers may not exempt the banks from stricter capital requirements as speculated last week.

"There is speculation more stringent capital requirements may be imposed on Asian banks," said Daphne Roth, head of Asian equity research at ABN Amro Private Banking, which oversees about $14 billion in the region.

China Construction Bank tumbled 7 percent to HK$7.43 in Hong Kong, Bank of China Ltd, the nation's third-largest by market value, slid 6 percent to HK$4.56. The smaller Bank of Communications Co fell 6 percent to HK$8.59.

Concern China may take additional steps to curb inflation also dragged down shares of raw material suppliers. Jiangxi Copper Co, China's biggest producer of the metal, declined 8.8 percent to 41.32 yuan in Shanghai. Aluminum Corp of China Ltd slipped 4.9 percent to HK$7.46 in Hong Kong.

Rusal fell 3.9 percent to HK$9.78. The company posted a 55 percent drop in third-quarter profit from a year earlier to $29 million, as the value of embedded derivatives fell.

Bloomberg News