Asia Pacific Market: Stocks fall as Fed downscale bond purchases woes, Chinese manufacturing weakens

Headline shares of the Asia Pacific market closed sharply lower on Thursday, May 23, 2013, with the MSCI Asia Pacific Index fell 3.%, heading for the biggest loss since November 2011, as risk aversion selloff sparked across the board on concerns that the Fed may cut its asset buying size in the coming months. Meanwhile, unexpected contraction in Chinese manufacturing activity intensified selling.

Risk aversion selloff triggered broadly after mixed messages by the US Federal Reserve on the future of its massive bond-buying program. The Federal Reserve Chairman Ben Bernanke said in testimony to Congress on Wednesday that easing measures continue to benefit the economy. Bernanke added withdrawing monetary stimulus could threaten the country's economic recovery as well as price stability. But, the minutes of the US Federal Reserve's Federal Open Markets Committee April 30-May 1 meeting that came hours after Fed Chairman Ben Bernanke testimony, revealed monetary stimulus measures designed to keep long-term interest rates low were bringing significant benefits and monetary authorities favor scaling back stimulus measures as early as June.

 

Fueling to gloom, selling pressure intensified further after a surprisingly weak May flash reading of China's Purchasing Managers Index adds to signs that the shaky recovery in the world's No. 2 economy is slowing.. The HSBC Flash China Manufacturing Purchasing Managers' Index, a preliminary reading of the country's factory activity, slipped to 49.6 in May, the lowest in seven months, due to weak demand at both home and abroad. A reading below 50 indicates contraction. The new orders index fell to 49.5, the worst reading since last September.

HSBC will release the final PMI reading on June 3. The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own PMI survey, with a bigger sample size, on June 1. The official PMI in April was 50.6, down from 50.9 in March.

In the Asia Pacific region, Japanese share market was worst performer of the region, with the Nikkei sliding 7.3% to 14,483.98, the biggest single-day loss since April 17, 2000, and the 11th largest loss ever. Investors pressed sell button due to yen appreciation against the major currencies, spike in government bond yields and sharp pullback in the future market. The Osaka Securities Exchange briefly suspended trade in Nikkei futures due to the steep drop.

The Bank of Japan raised its assessment of the economy for a fifth straight month in its latest report released Thursday, the longest streak of upgrades since 2002, as it noted improvements in consumption, business investment and household spending. In the previous month's assessment, the BOJ said the economy has stopped weakening and has shown some signs of picking up.

In Australia, shares in the Sydney market tumbled, dragging the benchmark ASX200 index lower by 2% to finish at 5062.40, on tracking weak finish of Wall Street overnight and sluggish preliminary manufacturing data from the China.

Metal & mining shares declined the most in Australia in reaction to sluggish economic data out of China, with iron ore players were among the worst hit. Rio Tinto erased 2.1% to A$55.10 and Fortescue Metals Group fell 2.8% to A$3.53, while Atlas Iron shrank 2.9% to A$0.825. BHP Billiton dropped 1.1% to A$34.88. Whitehaven Coal joined the procession, slipping 2.7% to A$2.19. Gold miner Newcrest Mining dropped 2.2% to A$14.55 and Kingsgate Consolidated down by 1.4% to A$1.425.

Telstra shares were 3.5% lower at A$4.96 following the announcement of a major restructure of its internal operations. The telco plans to divert its resources towards high-growth areas such as wireless, NBN and network services while cutting back on loss-making ventures, such as the Sensis directory business. About half of Telstra's 30,000-strong domestic workforce will be affected by the changes, which will be introduced between now and July 1, when the new structure goes live. The company's chief operation officer, Brendon Riley, described the move as the ''most substantive changes for 10 years''.

In China, headline shares in the Chinese market backpedaled after flash PMI data that showing an unexpected contraction in Chinese manufacturing activity. The Shanghai Composite Index was off 1.16% to 2,275.67.

Consumer-discretionary shares suffered massive fall in Shanghai, with automaker leads downfall, after the Chinese Academy of Social Sciences said in a report that China should refrain from micromanaging the automotive industry and allow market competition to spur innovation and weed out weaker automakers. SAIC, the largest carmaker, slid 3.5% to 15.31 yuan. Great Wall Motor Co, the biggest pickup truck maker, fell 4% to 37.40 yuan. Gree Electric, the biggest Chinese maker of air-conditioners, dropped 3.3% to 26.79 yuan.

In Hong Kong, HK shares plummeted, with the benchmark Hang Seng Index declining 2.54% to 22,669.68, as unexpectedly contraction in Chinese manufacturing activity added to worries the Federal Reserve could downscale its bond purchases spooked investors. Among the 50 HK blue chips, 49 fell and 1 rose. Belle International slipped 4.5% to HK$11.94, while Lenovo gained 2.8% to HK$7.38 on strong quarter earnings report, making themselves the largest blue-chip loser and gainer.

In India, key benchmark indices on the Indian market declined inline with losses in other global indices after the US Federal Reserve hinted at exiting exceptionally loose monetary policy. The 30-share BSE index Sensex provisionally closed 371.86 points down (1.85%) at 19,690.38. All BSE sectoral indices were trading in the red, with realty and capital goods indices led losses.

Elsewhere, Indonesia's JKSE fell 1.66%, Malaysia's KLSE lost 0.61%, New Zealand's NZX50 dropped 0.47%, Singapore's STI slipped 1.77%, South Korea's KOSPI shed 1.24% and Taiwan's Taiex lost 1.92%.

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