Asian stocks dip on profit concern

Asian stocks fell for a second day, led by commodity and financial companies, on signs that the deepening global recession is hurting corporate profits.

Rio Tinto Group dropped 4.1 per cent as UBS AG cut its earnings target and as the world’s third-largest mining company halted production at an iron plant.

Hon Hai Precision Industry, the world’s biggest contract maker of electronics, lost 6.6 per cent in Taipei after the company said it is cutting jobs. DBS Group Holdings, Southeast Asia’s largest bank, slumped 4.9 per cent as it sought about $2.8 billion in a rights offering.

“There’s still a lack of visibility regarding the timing of the economic recovery,” said Shane Oliver, head of investment strategy at AMP Capital Investors, which manages $61 billion in Sydney. “The economy’s going to go through a very rough period. You can’t rule out further declines in the share market.”

The MSCI Asia Pacific Index fell 0.3 per cent to 89.23 as of 7:17 pm in Tokyo, with most of the region’s markets dropping except Japan, New Zealand, and Vietnam. The Nikkei 225 Stock Average gained 1.6 per cent, as Nomura Holdings advanced after Barron’s said profits from Lehman Brother Holdings assets may drive the stock higher.

HSBC Holdings declined in Hong Kong, leading the Hang Seng Index to a 3.3 per cent drop, after Standard & Poor’s gave Europe’s largest bank a “negative” outlook. China’s CSI 300 Index lost 1.7 per cent amid concern investors will flood the market with previously untraded shares as lock-up periods expire.

MSCI’s Asian index has lost 43 per cent this year, the worst annual performance in its two-decade history, as the credit crisis dragged the world’s biggest economies into recessions. The decline has taken the average valuation of companies on the measure to 12.8 times estimated profit, more than a quarter below the level at the start of 2008.

The MSCI gauge has rallied 8 per cent this month, on track for its first monthly gain since April, as governments from the US to Japan slashed interest rates and took more steps to bolster economies struggling to cope with $1 trillion of credit- related losses and writedowns.

US stocks posted the first back-to-back weekly gains last week as the Federal Reserve cut interest rates to a record low and the government pledged a $13.4 billion rescue plan for the country’s biggest automakers.

“Historically, stimulus has worked with a lag, and things could get worse before they get better,” said Prasad Patkar, who helps manage $800 million at Platypus Asset Management in Sydney. “The world economy is still facing severe headwinds.”

A government report showed On Monday that Japanese exports plunged the most on record last month as demand for cars and electronics collapsed. Falling commodities demand prompted Rio Tinto to suspend operations at its Hismelt pig iron plant in the state of Western Australia.

Rio shares declined for a third day, falling 4.1 per cent to A$37.40. UBS cut its profit forecast for the mining company after analysts lowered their coking coal price estimates. Rio’s profit may be $6 billion in the year ending December 31, 2009, 5.6 per cent lower than previously estimated, a UBS report said.