BL: Asian Stocks Hit 10-Month Low on N.Korea War Report
By Clyde Russell and Saeromi Shin - May 25, 2010
Asian stocks and the won plunged to 10-month lows after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week. The euro weakened and commodities declined on concern Europe’s debt crisis will spread.
The MSCI Asia Pacific Index dropped 3.1 percent to 109.24 at 1:30 p.m. in Tokyo, set for its lowest close since July 30. Standard & Poor’s 500 stock index futures lost 1.5 percent. The won lost 4.6 percent against the yen and Korea’s Kospi Index slumped 4.1 percent. The euro fell 1 percent against the yen. Crude oil slipped below $70 a barrel.
“Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, are affecting investors’ sentiment,” said Kim Young Joon, a fund manager at NH-CA Asset Management in Seoul, which manages $9.7 billion in assets. “But much of North Korea’s comments appear bluffing. I don’t think another disastrous event will happen.”
The North Korea Intellectuals Solidarity group said on its web site that the country’s military was put on alert and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. The International Monetary Fund urged Spain to take more steps to overhaul ailing banks as the nation’s financial sector “remains under pressure.”
Defense Stocks Gain
The won plummeted fell 4.4 percent to 1,267.25 per dollar. The Kospi plunged 4.3 percent to 1,534.25. The gauge has fallen 12.4 percent from its recent high of 1,752.20 reached on April 26 and has entered a correction, defined as a decline of more than 10 percent from a peak.
South Korean defense-related stocks rallied in Seoul. Speco Co., a military installation parts developer, jumped 12.6 percent to 5,410 won, while Victek Co., which makes electronic warfare equipment, soared .7 percent to 4,455 won.
Just 42 of the MSCI Asia Pacific Index’s 982 companies advanced today. Hong Kong’s Hang Seng Index sank 2.5 percent and China’s Shanghai Composite Index declined 1.2 percent. The Nikkei 225 Stock Average lost 2.8 percent. Australia’s S&P/ASX 200 Index slid 2.3 percent.
Futures on the Standard & Poor’s 500 Index fell after the measure dropped 1.3 percent in regular trading yesterday. Banks declined the most among the S&P 500’s 24 industries, after the London interbank offered rate, or Libor, for three-month dollar loans advanced to the highest level since July 16, according to data from the British Bankers’ Association.
‘Land Mines’
“Europe is walking on land mines that have yet to explode,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Investors are selling shares and adjusting their positions on concerns over European debt.”
Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($167 billion) in assets, as regulators push ailing lenders to merge with stronger partners.
The euro dropped 0.8 percent to 110.82 yen in Tokyo from 111.71 yen in New York yesterday. The common currency fell to $1.2307 from $1.2372. The dollar traded at 90.05 yen from 90.29 yen.
Australia & New Zealand Banking Group Ltd. slid 2.2 percent, leading declines among financial companies. Financial companies were the heaviest drag on MSCI’s Asian gauge as the cost of insuring Asia-Pacific bonds from default rose. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 4 basis points to 151.5 basis points, according to Royal Bank of Scotland Group Plc.
Canon Inc. slipped 2.7 percent to 3,610 yen. Olympus Corp., an endoscope maker that makes 18 percent of its sales in Europe, declined 3.4 percent to 2,221 yen.
Commodities Drop
BHP Billiton Ltd., which got 22 percent of its fiscal 2009 revenue in Europe, slid 3.2 percent to A$36.61 in Sydney after copper and oil prices retreated on concern a slowdown in the euro region will reduce demand. Rio Tinto Group, the world’s third-largest mining company, lost 3.1 percent to A$62.15.
Crude oil declined 1.4 percent to $69.26 a barrel in New York. Copper dropped 1.5 percent to $6,809 a metric ton on the London Metal Exchange. The metal has slumped 11 percent in the past month. Aluminum declined 1.4 percent to $2,055 a ton and nickel slumped 2.3 percent to $21,700 a ton.
“I don’t think things have worsened in Europe in the past few days, but the reason we haven’t seen any significant rallies in the market is that the uncertainty hasn’t dissipated,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said in a telephone interview. “The one thing about the euro zone is that everyone has been revising down their demand outlook. The fundamentals there have no doubt become weaker in the last month.”
To contact the reporter for this story: Clyde Russell in Singapore at crussell7@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net
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