BL: Asia Stocks, Copper Drop on China Loan Curbs, Mining Tax; Euro Falls
By James Regan and Shani Raja
May 3 (Bloomberg) -- Stocks fell, led by mining companies, and copper declined after China ordered banks to set aside more funds as reserves and Australia boosted taxes on commodities producers. The euro weakened as the $146 billion rescue plan for Greece failed to calm concerns about sovereign debt in Europe.
The MSCI Asia Pacific excluding Japan Index slid 1.1 percent, with raw-materials and financials accounting for about half of the loss. BHP Billiton Ltd. dropped the most in three months and copper touched a seven-week low. The euro fell 0.5 percent to $1.3226 and Greek bonds advanced. The Dow Jones Euro Stoxx 600 was 0.2 percent lower as of 8:04 a.m. in London, while futures on the Standard & Poor’s 500 Index gained 0.4 percent.
“The Greek rescue package hasn’t curbed speculation that more countries will require similar bailouts,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The new Australian resources tax is an unwelcome burden and Chinese demand may cool.”
While the bailout by the European Union and International Monetary Fund reduces the risk Greece will default, investors remain skittish after Standard & Poor’s downgraded the credit ratings of Portugal and Spain last week. China raised bank reserve ratios for the third time this year to cool speculative real estate purchases, while the Australian government imposed a 40 percent tax on resource companies’ profits.
The MSCI Asia Pacific excluding Japan Index declined to 422.94, set for its lowest close since March, and a measure of raw-materials shares dropped 2.4 percent. With the exception of Indonesia, benchmark stock gauges fell across regional markets that were open for trading, led by a 1.2 percent slide in Hong Kong’s Hang Seng Index. Markets are closed today in Japan, China, Thailand and the Philippines.
Higher Taxes
BHP, the world’s biggest mining company, slumped 3 percent to A$39.53 and Rio Tinto Ltd., the third-largest, tumbled 4.3 percent to A$69. Australia’s new tax will start from 2012 and raise A$12 billion ($11.1 billion) in its first two years. BHP estimates the tax rate on its Australian earnings will increase to 57 percent in 2013 from 43 percent now.
“The mining tax is disappointing because the goal posts are being moved out by a greedy government, which is never good for future investment,” said Prasad Patkar, who helps oversee about $1.9 billion at Platypus Asset Management in Sydney.
Lending Restrictions
Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, sank 1.6 percent to HK$5.68 and China Construction Bank Corp. fell 1.3 percent to HK$6.34. The reserve requirement for the nation’s biggest banks will increase by 50 basis points to 17 percent effective May 10, the People’s Bank of China said yesterday.
Most of Asia’s emerging-market currencies weakened and copper declined on concern monetary tightening will damp expansion in the world’s third-largest economy. China, including Hong Kong, is the No. 1 export destination for Korea, Taiwan and Malaysia and the world’s biggest copper user. The won slid 0.9 percent to 1,118.40 per dollar and copper for July delivery dropped as much as 1.5 percent to $3.3050 per pound.
The euro fell versus 12 of its 16 major counterparts before European leaders meet on May 7 to discuss the timeline of parliamentary approval for loans to Greece and as Germany plans to debate the plan on the same day. The yield on Greece’s benchmark two-year bonds dropped 169 basis points, or. 1.69 percentage points, to a one-week low of 11.88 percent.
“It is still too early to conclude that the worst is over for the single currency,” said Philip Wee, senior currency economist at DBS Group Holdings Ltd. in Singapore. “The EU nations now need their parliaments to approve the aid, and markets remain skeptical over Greece’s resolve to implement tough reforms.”
Rating Cuts
Greece’s three-year financial lifeline requires the nation to cut its budget deficit below the European Union’s limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The shortfall was 13.6 percent last year, the region’s second-biggest, after Ireland.
Standard & Poor’s last week cut Greece’s credit rating to junk, lowered Spain by one level to AA and cut Portugal by two steps to A-. The downgrades helped drive the yield premium on Portugal’s 10-year bonds over similar-maturity German notes to the highest level since at least 1997 and that for Spain’s debt to the most since March 2009.
“The euro will remain weak, and there’ll be more bailouts,” Marc Faber, publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong. “They’ll all default or they’ll all print money but the outcome won’t be pretty, that I assure you.”
To contact the reporter for this story: James Regan in Hong Kong Jregan19@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
Last Updated: May 3, 2010 03:08 EDT
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