Asian Stocks Drop as Commodities Tumble Amid Inflation Concern

May 12, 2011, 7:11 AM EDT By Shani Raja

May 12 (Bloomberg) -- Asian stocks fell, with the key regional index set for its biggest slide since markets crashed in the wake of Japan’s record earthquake in March, as commodity prices tumbled amid concern that China will further tighten monetary policy.

BHP Billiton Ltd., the world’s largest mining company, dropped 2.6 percent in Sydney after oil and metal prices sank yesterday in New York. Jiangxi Copper Co., China’s No. 1 producer of the metal, declined 2.2 percent in Hong Kong. Korea Zinc Co. slid 5.7 percent in Seoul, while Mitsubishi Corp., Japan’s biggest commodities trader, fell 2 percent. Olympus Corp., an optical-equipment maker, lost 5.6 percent in Tokyo after reporting an 85 percent slump in profit.

The MSCI Asia Pacific Index declined 1.6 percent to 136.14 as of 7:44 p.m. in Tokyo after commodity prices tumbled yesterday as China reported faster-than-estimated inflation and as the U.S. Federal Reserve gets closer to ending a $600 billion asset-purchase program, known as quantitative easing, in June.

“Markets always struggle with tightening cycles,” said James Holt, Sydney-based director of BlackRock Investment Management (Australia) Ltd., which oversees about $40 billion in assets. “The China inflation data yesterday shows that the country will need to do more tightening. This comes at the same time as investors pre-empt the end of the second round of quantitative easing, which has pumped up asset and commodity markets.”

Nikkei, Kospi

The gauge is headed for its steepest drop since March 15, when it fell 5 percent as Japanese stocks plunged amid a nuclear crisis triggered by a magnitude-9 earthquake and ensuing tsunami on March 11.

Japan’s Nikkei 225 Stock Average fell 1.5 percent and South Korea’s Kospi Index lost 2 percent. Hong Kong’s Hang Seng Index retreated 0.9 percent. Australia’s S&P/ASX 200 Index decreased 1.8 percent on a day the statistics bureau reported that the nation’s employers unexpectedly cut workers in April by the most since 2009.

Futures on the Standard & Poor’s 500 Index lost 0.6 percent today. In New York yesterday, the index slumped 1.1 percent, its biggest decline since March 16.

The MSCI Asia Pacific Index rose 0.5 percent this year through yesterday, compared with gains of 6.7 percent by the S&P 500 and 2.9 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 13.6 times estimated earnings on average at yesterday’s close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.

BHP, Korea Zinc

The Asia-Pacific gauge has risen close to 5 percent and commodity prices have surged since Nov. 3 when a U.S. plan to buy Treasuries was unveiled. The Fed said last month it won’t need to extend the $600 billion program beyond its scheduled end next month.

BHP Billiton, also Australia’s No. 1 oil producer, lost 2.6 percent to A$44.13 in Sydney, while Rio Tinto Group, the world’s No. 2 mining company by sales, retreated 2 percent to A$79.79. Jiangxi Copper slumped 2.2 percent to HK$24.10 in Hong Kong.

Korea Zinc slid 5.7 percent to 367,500 won in Seoul and Mitsubishi Corp. declined 2 percent to 2,112 yen in Tokyo.

China Growth Risk

“The volatility in commodity prices and concerns about future policy direction in China have increased investor uncertainty,” said Tim Schroeders, Melbourne-based manager at Pengana Capital Ltd., which oversees about $1 billion. “Any perception that risks to the Chinese growth story are increasing will see investors react swiftly to adjust.”

Material and energy stocks led today’s declines after crude oil for June delivery plunged 5.5 percent to settle at $98.21 a barrel yesterday in New York. Copper fell to the lowest price in five months after China reported inflation remains above the government’s target, signaling further monetary-policy tightening that may curb metal demand.

The London Metal Exchange Index of six metals including copper and aluminum lost 1.9 percent yesterday, its first drop in four days.

“The inflation concern is causing investors to avoid risk assets,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “That is the underlying reason for a slump in the commodity market.”

Consumer Prices

Consumer prices in China rose 5.3 percent from a year earlier and banks extended 740 billion yuan ($114 billion) of local-currency loans, according to reports yesterday from the statistics bureau and central bank.

Inflation is “the most pressing problem” facing the world’s second-biggest economy, Vice Premier Wang Qishan said this week. Monetary policy will remain “prudent” and focus on removing “inflationary monetary elements,” Chinese officials said in a statement in Washington after talks with the U.S.

Oil refiners dropped today after gasoline prices yesterday sank the most since February 2009 in New York. S-Oil Corp. slumped 6.3 percent to 134,000 won in Seoul, while SK Innovation Co. fell 4.7 percent to 215,500 won. In Sydney, Caltex Australia Ltd., Australia’s largest oil refiner, slid 1.3 percent to A$14.35.

Olympus dropped 5.6 percent to 2,281 yen in Tokyo. The company said full-year net income tumbled 85 percent to 7.38 billion yen as sales fell and did not disclose a profit forecast for this year.

Also in Tokyo, Citizen Holdings Co. decreased 7.3 percent to 459 yen. The watchmaker booked 5.12 billion yen ($63 million) in net income for the year ended March 31, missing its forecast by 27 percent.

--With assistance from Norie Kuboyama and Toshiro Hasegawa in Tokyo. Editor: John McCluskey, Nick Gentle.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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