Asia Pacific Market: Stocks fall as hawkish Fed minutes, sluggish China factory data

Asia Pacific share market finished lower on Thursday, 21 November 2013, as investors risk sentiments hammered by slightly more hawkish minutes from the last Federal Reserve meeting and weaker than expected reading on the health of China's manufacturing sector.

Risk aversion selling flared broadly across the regional bourses after minutes from the FOMC October policy meeting hint of tapering in next few months. According to the minutes, many Fed members felt if the economy warranted, it could decide to slow bond purchases at one of its next few meetings. It noted that many members were seeing downside risk to the economic outlook as having diminished.

 

The US central bank currently buys bonds worth $85 billion a month in a bid to hold interest rates low and encourage economic growth in the world's biggest economy. Fed's bond-buying program has been a source of liquidity for most Asian and emerging markets this year.

Meanwhile, weaker than expected China's HSBC flash manufacturing PMI fell in November also leading to the profit-taking. In China, the HSBC flash manufacturing purchasing managers index, an early indicator of business activity for China's factories, fell to a two-month low of 50.4 in November from a final reading of 50.9 in October. The bigger than expected slowdown was mainly due to a drop in new export orders.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said China's growth momentum softened a little in November, as the HSBC Flash China Manufacturing PMI moderated due to the weak new export orders and slowing pace of restocking activities. Qu said this is still the second highest PMI reading in seven months. The muted inflationary pressures should enable Beijing to keep policy relatively accommodative to support growth.

Among Asian bourses, Japanese shares skyrocketed, buoying the benchmark Nikei225 index higher by 289.52 points to finish at 15365.60, on the back of yen weakening against the greenback and the Bank of Japan confirmation it will continue to stimulate its economy (printing money until inflation reaches 2%)

The Bank of Japan kept its policy settings on hold on Thursday, judging that fragility in overseas economies is not serious enough to threaten steady progress towards its ambitious inflation target. In a statement, the BoJ said it would continue buying enough assets to pump up the monetary base at a rate of about Y60tn-Y70tn a year, in order to achieve stable annual price rises of 2%.

In the currency market, the yen slid 0.7% to 100.75 per dollar today, its lowest level since July 19. Japan's currency retreated against all its 16 major peers.

The bullishness in Tokyo market also aided with data released by the Ministry of Finance showing that non-Japanese buying of equities reached about Y1.3 trillion last week, the largest amount since mid-April. Foreign interest is a closely-watched barometer of the Japanese stock market, as overseas investors account for up to two-thirds of the daily market turnover by value.

Shares of yen-sensitive Japanese exporters bounced after the yen closing above 100 marks against the greenback. Kyocera gained 2.7% to 5,260 yen and Honda Motor 3.4% to 4,240 yen. Panasonic Co added 2.3% to 1,070 yen. Sony Corp gained 1.4% to 1,894 yen.

Minebea advanced 5.7% to 710 yen after Barclays raised its rating on the stock to overweight from equal weight, while boosting its price target to 830 yen from 540 yen.

Mitsubishi Estate sank 0.5% to 2,837 yen on brokerage rating downgrade. JPMorgan cut its rating on the stock to neutral from overweight, while Mitsubishi UFJ Morgan Stanley Securities Co. also reduced its outlook for the developer to neutral from outperform.

In Australia, Australian financial market fell down for fourth day in row, weighing the benchmark S&P/ASX 200 index down 0.37% to 5288.30, as investors risk sentiments hammered by slightly more hawkish minutes from the last Federal Reserve meeting and weaker than expected manufacturing data out of China.

Shares of Australian precious metal producers declined due to fall in bullion prices in the international market. Gold futures fell to a four-month low on Wednesday with the Comex December futures gold price down by $15.50 or 1.2% to $1,258.00 per ounce. Newcrest Mining shed 4% to A$8.70, Perseus Mining 10.5% to A$0.306 and Kingsgate Consolidated 6.6% to A$1.21.

Australian materials and resources were mixed, with Australia's largest miner BHP Billiton finishing edge 0.03% up at A$37.56 after telling shareholders it expects greater than 7% economic growth in its largest export market China in 2014. Meanwhile, Rio Tinto, second biggest miner, gained 0.1% to A$64.82 as the spot price for iron ore, landed in China, firmed to $136.40 per tonne. Fortescue Metals dropped 0.7% to A$5.75.

Healthcare was the best-performing sector in Australian market today. Vaccine maker CSL added 0.2% at A$67.67, on news it is set to test a new cardiac treatment using a bi-product from its plasma business.

Radiology and pathology clinic operator Sonic Healthcare rose 1.5% at A$16.63, after boss Colin Goldschmidt reaffirmed guidance for full-year earnings growth of 5%. The guidance is based on last year's exchange rates leaving scope for more earnings growth if the Aussie dollar falls.

In China, Chinese stock market finished edge lower after trimming losses late afternoon as weaker than expected reading on the health of China's manufacturing sector mostly offset buoyant sentiments which spur by Beijing's financial reforms plans. The Shanghai Composite fell 0.04% to 2205.77 while the CSI 300 Index shed 0.61% to 2409.99.

Shares of Chinese financials companies declined the most on profit taking, with New China Life 3.2% on reports Zurich Insurance sold its entire stake in New China Life for $943 million

Property developers' shares went lower, with China Vanke erasing 3% to 8.83 yuan while Poly Real Estate retreated 3% to 8.96 yuan on reports China may use a higher tax rate in its property tax trials and increase significantly the scope of residence properties that must pay the tax.

China's money markets rates eased on Thursday, with rates falling from yesterday after the central bank injected a hefty 33 billion yuan via 14-day reverse repurchase agreements on Thursday. The injection was on the top of 35 billion yuan injection to the market through seven-day reverse repurchase agreements on Tuesday, brings the week's net position to a 59 billion yuan injection, the largest weekly injection since the week of September 24.

The seven-day repo, a gauge of borrowing costs among banks and usually watched as an indicator of liquidity stress, traded at a weighted average of 4.70 % by late afternoon compared with 4.70% prior day. The overnight repo, a benchmark measure of interbank funding availability, traded at a weighted average of 3.93% compared with 4.06% previous day.

In Hong Kong, HK shares declined as investors fretted over slightly more hawkish Fed minutes and sluggish manufacturing data out of China. Hong Kong's benchmark Hang Seng Index declined 120.57 points to finish at 23580.29, while the Hang Seng China Enterprises Index lost 104.30 points to 11333.14.

Among the HK 50 blue chips, 17 stocks rose and 32 fell, with one stock remaining steady. COLI (00688) slipped 2.7% to HK$23.85, while Cathay Pacific (00293) gained 3.2% to HK$16.08, making themselves the biggest blue-chip loser and winner. China Mobile (00941) slipped 1.3% to HK$80.95, while HSBC (00005) inched down 0.3% to HK$86.45. Shares of Zijin Mining Group Co tanked 2.2% to HK$1.80 after a heavy fall for Comex gold futures overnight

Financials shares in Hong Kong were among the underperformers after rising earlier in the week on announcements from Beijing about plans to reform the markets. China Merchants Bank Co shed 3.3% to HK$1.36 and China Construction Bank Corp lost 1.1% to HK$6.22.

Chinese airline carriers listed in Hong Kong were higher. Air China (00753) shot up 9.7% to HK$6.09. CEA (00670) jumped 9.2% to HK$3.21. CSA (01055) added 9.6% to HK$3.31. Elsewhere, Bohai-rim steam coal price soared significantly, pushing the coal mining firms higher. Yanzhou Coal (01171) jumped 5.3% to HK$8.36. China Coal (01898) put on 3% to HK$5.09. China Shenhua (01088) gained 1% to HK$26.15.

On the economic front, Census and Statistics Department (C&SD) released today (November 21) the Consumer Price Index (CPI) figures for October 2013. According to the Composite CPI, overall consumer prices rose by 4.3% in October 2013 over the same month a year earlier, smaller than the corresponding increase (4.6%) in September 2013. Netting out the effects of all Government's one-off relief measures, the year-on-year rate of increase in the Composite CPI (i.e. the underlying inflation rate) in October 2013 was 4.0%, also smaller than that in September (4.2%), mainly due to the smaller increases in the prices of fresh vegetables.

In India, Indian benchmark indices finished weaker as investor sentiment was hit adversely after minutes from the Federal Reserve's last meeting signaled US stimulus may be reduced in coming months. The barometer index, the S&P BSE Sensex, was provisionally down 372.73 points or 1.81%, up 183.50 points from the day's low and off 206.53 points from the day's high.

In the foreign exchange market, the Indian rupee edged lower against the dollar due to broad dollar gains after minutes from the US Federal Reserve's October policy meeting showed the US central bank considering an imminent slowing of its bond-buying program. The partially convertible rupee was hovering at 62.90, compared with its close of 62.57/58 on Wednesday, 20 November 2013.

Indian Finance Minister P. Chidambaram said today, 21 November 2013, in Singapore that India will close the special concessional swap rate offered to lenders raising funds abroad on 30 November 2013.

The window for the foreign currency non-resident (bank), or FCNR (B), is due to close on 30 November 2013, although some banks have pushed for an extension. "Two months ago, the Reserve Bank opened a special window to attract more funds into FCNR (B), and I am happy to report that, as I speak to you today, the scheme, which will close on November 30, 2013, has received $16 billion," Chidambaram said according to a copy of his speech, released in New Delhi by the finance ministry.

Indian government bond prices dropped after minutes from the US Federal Reserve's October policy meeting showed the US central bank considering an imminent slowing of its bond-buying program. The yield on most traded federal paper, 8.28% GS 2027, was hovering at 9.0644%, higher than its close of 9.0262% on Wednesday, 20 November 2013. The yield on 10-year benchmark federal paper, 7.16% GS 2023, was hovering at 9.0833%, higher than its close of 9.0355% on Wednesday, 20 November 2013. Bond yield and bond prices are inversely related.

Fitch Ratings said in a report published on Wednesday, 20 November 2013, that the spillover effects of a weaker rupee have not significantly hurt India's creditworthiness, and hence would not trigger any rating action as this point. India's ratings already incorporate both the sovereign's vulnerabilities and tolerance for volatility in global financial market conditions, Fitch said.

The rating agency said that India's economy has not lost much momentum, with both agriculture and exports remaining resilient and providing a cushion. Fitch therefore expects the economy to recover with real GDP forecast to rise 4.8% in FY 2014 (financial year ending March 2014) and 5.8% in FY 2015, compared with a 5% rise in FY 2013.

Elsewhere in the region, Indonesia's Jakarta Composite index shed 0.56%. South Korea's KOSPI erased 1.16%. Taiwan's Taiex index lost 1.28%. Malaysia's KLSE Composite shed 0.22%. Singapore's Straits Times index fell 0.37%.

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