Asian Stocks Decline in Holiday Trade as BOJ Warns of Downside

December 27, 2011, 2:40 AM EST By Yoshiaki Nohara

Dec. 27 (Bloomberg) -- Asian stocks fell amid slow holiday trading, with the regional benchmark headed for its worst year since 2008, as the Bank of Japan warned of downside risks to the economy and South Korean consumer confidence slid.

Nissan Motor Co., Japan’s third-largest carmaker by market value, fell 1.7 percent. Anhui Conch Cement led losses among Chinese industrial companies after a report profit growth slowed in the sector. Samsung Electro-Mechanics Co. fell 6.8 percent in Seoul after saying it will sell its stake in a light-emitting diode business for less than investors expected. Nishimatsu Construction Co. led gains among Japanese construction firms after a report the country will build three bullet train lines.

The MSCI Asia Pacific Index fell 0.3 percent to 113.59 as of 4:09 p.m. in Tokyo, with more than two stocks falling for each that rose. The measure is headed for an 18 percent loss this year, its biggest annual decline since 2008. Markets in Australia, New Zealand and Hong Kong are closed today.

“Economic uncertainty is deepening around the world, which is showing up in some Japanese statistics on exports and production,” said Hitoshi Asaoka, a Tokyo-based senior strategist at Mizuho Trust & Banking Co. “Investors find it hard to move near year-end.”

Japan’s Nikkei 225 Stock Average lost 0.5 percent after minutes from a central bank meeting last month showed a few board members said Europe’s sovereign-debt crisis and the yen’s rise pose increasing risks to economic growth. Trading volume on the gauge was more than 59 percent below the 100-day average, according to data compiled by Bloomberg.

‘No Catalyst’

“There’s no outstanding catalyst to buy stocks,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Trading energy plunged in the Tokyo market yesterday. Today as well, we can’t expect foreign investors to buy shares as the overseas markets are closed.”

Nissan lost 1.7 percent to 684 yen. Sharp Corp., Japan’s largest maker of flat-panel displays, slid 1.4 percent to 711 yen.

South Korea’s Kospi Index fell 0.8 percent after consumer sentiment slipped. The gauge dropped as much as 2.3 percent after a mistaken order was apparently placed, according to La Sung Chae, an official at the market trading analysis team of Korea Exchange Inc. Shares also fell amid unsubstantiated rumors concerning the health of the new leader of North Korea and the nation’s relations with China, the official said.

Shanghai Stocks

The Shanghai Composite Index dropped 1.1 percent. Shares of mainland industrial companies fell after a report that profit growth declined to 24.4 percent in the first 11 months of the year from 25.3 percent in the 10 months through October.

Anhui Conch Cement slid 2.4 percent to 15.11 yuan. Sany Heavy Industry Co. fell 1.9 percent to 11.94 yuan.

Samsung Electro-Mechanics retreated 6.8 percent to 80,700 won in Seoul. The maker of electronic parts will sell its stake in an LED venture to Samsung Electronics Co. for 283 billion won ($244 million), according to a regulatory filing. The value of the deal is lower than expected, Woori Investment & Securities Co. said in a report today. Samsung Electronics gained 0.7 percent to 1.07 million won.

Japanese construction companies advanced after the Nikkei newspaper said the nation will start work on three bullet train lines, citing Transportation Minister Takeshi Maeda. Nishimatsu added 3.2 percent to 129 yen. Matsui Construction Co. rose 3 percent to 307 yen.

Stocks in the MSCI Asia Pacific Index are valued at 12.7 times estimated earnings on average, compared with 12.8 times for the S&P 500 and 10.5 times for the Stoxx 600. Utilities have lost 27 percent this year, the worst among the 10 industry groups on the Asian benchmark gauge, as Japanese power generators tumbled after a nuclear crisis at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant.

--With assistance from Toshiro Hasegawa and Norie Kuboyama in Tokyo. Editors: Jason Clenfield, Jim Powell.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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Merkel, Sarkozy Unite on EU Revamp as S&P Warns on Ratings

December 06, 2011, 5:20 AM EST By Patrick Donahue and Helene Fouquet

(Updates euro price in seventh paragraph, Juncker comments in eighth. For more on the European debt crisis, see EXT4.)

Dec. 6 (Bloomberg) -- German Chancellor Angela Merkel and French President Nicolas Sarkozy strengthened their push for new rules to tighten euro-area economic cooperation as Standard & Poor’s said it may downgrade credit ratings across the region.

Hours after meeting in Paris yesterday, the leaders of Europe’s two biggest economies responded that they “took note” of the move by S&P, while both countries “reinforce their conviction” that common proposals for closer fiscal union in the European Union will lead the way out of the crisis.

“The actions of the last three years have shown that the euro zone governments are not prepared to act collectively in a way that convinces markets,” said Paul Donovan, deputy head of global economics at UBS AG in London. The S&P move “may perhaps heighten the desirability of coming out with a compelling solution for the French and the Germans.”

Germany and France risk losing their AAA credit ratings in a review of 15 euro nations for possible downgrade, S&P said. At an earlier meeting in Paris, Merkel and Sarkozy said both countries were aligned on backing automatic penalties for deficit violators and locking limits on debt into euro states’ constitutions. Investors say such moves might pave the way for the European Central Bank to do more to fight the debt crisis.

ECB Focus

The question is whether the Franco-German push toward integration is enough to prompt ECB President Mario Draghi to step up the central bank’s response, said Carsten Brzeski, an economist at ING Group in Brussels.

While the leaders’ announcement is “a good start to the week of truth,” Merkel and Sarkozy still “need to put money where their mouth is and bring everyone else on board,” Brzeski said by phone. “From a financial market perspective, it’s about them doing enough to deliver Draghi’s fiscal compact.”

The euro fell 0.4 percent against the U.S. dollar, trading at $1.3343 at 9:15 a.m. Frankfurt time -- down from an intraday high of $1.3487 yesterday as the S&P’s warning doused optimism over joint action by euro leaders. S&P put European nations including the six AAA-rated countries on watch for potential downgrades pending the outcome of a Dec. 9 summit of EU leaders.

‘Excessive’

Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the warning by the rating company was like a “knockout blow” to governments that are undertaking measures to scale back deficits.

“I have to wonder that this news reaches us out of the clear blue sky at the time of the European summit -- this can’t be a coincidence,” Juncker said in an interview today on German radio broadcaster Deutschlandfunk.

The S&P move was “excessive,” said Vincent Truglia, managing director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s Investors Service, a rival rating company.

“Countries like Germany, Luxembourg, Netherlands, Finland are AAA, and Austria is a pretty strong AAA,” he said.

S&P said that ratings could be cut by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and by up to two notches for the other governments.

The other countries warned are Estonia, France, Ireland, Italy, Malta, Portugal, Slovakia, Slovenia and Spain, according to S&P. The company said it maintained the negative outlook for Cyprus, and Greece wasn’t put on “creditwatch.”

‘United’ Resolve

With the fate of the currency shared by the 17 euro states at risk, Merkel and Sarkozy are stressing their common platform going into the summit that aims to end the crisis that’s now in its third year. After Merkel compared the mission to a “marathon” last week, Sarkozy said yesterday that euro leaders would go on a “forced march” to win back confidence.

Among the measures announced were plans to fast-track the euro’s permanent rescue fund to 2012, one year earlier than envisaged. Germany and France will also seek to ensure that decisions by the fund, the European Stability Mechanism, can be made by a “qualified majority” rather than a unanimous vote by the participating governments. Sarkozy said they aimed to reach consensus on treaty change with other euro leaders by March.

“We don’t have time -- we are conscious of the gravity of the situation,” Sarkozy said after meeting with Merkel over lunch at the Elysee palace. “We want to go as fast as possible based on this agreement between France and Germany, which is open to others.”

Response

Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules.

Draghi signaled last week that should a “new fiscal compact” emerge among the euro nations, “other elements might follow.” Merkel and Sarkozy both declined to comment on Draghi’s comments, stressing the ECB’s independence.

“It’s a step in the right direction for the ECB but we’ll want to know how the automatic sanctions are triggered,” said Klaus Baader, co-chief economist at Societe Generale SA. “When France and Germany have joint press conferences and say we agree on everything you have to take that with a pinch of salt.”

With the EU summit looming, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt to meet with Draghi and Bundesbank President Jens Weidmann before heading to Berlin for talks with German Finance Minister Wolfgang Schaeuble. The ECB holds a policy meeting on Dec. 8.

‘Bit of Trust’

European leaders will seek to “win back a bit of trust” at the summit after “our reliability has suffered,” Merkel said in Paris. “We are steadfastly determined to make the decision at the council now.”

Merkel and Sarkozy yesterday repeated their rejection of jointly sold euro bonds in solving the crisis, while seeking to calm concerns of euro-area member states that the European Court of Justice would be able to veto national budgets as part of their proposal for centralized deficit supervision.

With euro bonds ruled out, “the onus is still on the ECB to print money to make huge loans or bond purchases and draw a line under the crisis,” said Jennifer McKeown, senior European economist at Capital Economics in London.

The move by S&P adds impetus to that, said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.

“Anything which impacts the perceived creditworthiness of the main guarantors of euro zone debt is bad news for planned steps towards a fiscal union,” he said in an e-mail. “All this puts more pressure on the ECB to hold the fort.”

--With assistance from Zoe Schneeweiss in Vienna, Mark Deen, Albertina Torsoli and Gregory Viscusi in Paris, Tony Czuczka and Alan Crawford in Berlin, Jeff Black in Frankfurt and Simon Kennedy in London. Editors: Leon Mangasarian, Simone Meier.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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