Asian stocks fell on Monday, with forecasts of corporate earnings slashed as the global economy rapidly deteriorates, steering investors toward the yen and US dollar, which hit a two-month high against the euro.
Major European stocks were expected to open as much as 1.2% lower, according to financial bookmakers, with the focus on expectations for poor corporate results. From the auto industry to technology firms, companies are lowering their outlooks because of the worsening environment for business and consumer spending.
Hitachi Ltd plunged 17% after it warned of a record annual loss due to weak sales, a firmer yen and costs to restructure its sprawling operations. The $7.8 billion loss would be the biggest ever full-year loss for a Japanese manufacturer. Waning demand from developed economies in the West continued to devastate Asia’s export markets and reverberate through financial markets.
South Korean exports shrank by a third in January compared with a year ago. Dismal US economic reports as well as uncertainty about a massive fiscal stimulus package in Washington helped spark the worst Wall Street January performance ever. US Treasury bonds meanwhile have provided little solace since dealers have been lately more concerned about the government’s growing borrowing needs to finance multiple rescue plans.
“There’s no question that the global economy has worsened a notch more, and concerns about this will be in a tug-of-war with expectations for economic stimulus policies,” said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities in Tokyo. Japan’s Nikkei share average fell 1.5%, down for a second day. In addition to Hitachi, shares of NEC Corp and Mitsubishi Electric Corp both fell after the companies slashed their outlooks.
In Australia, where the benchmark stocks index was down 1.2%, shares of miner Rio Tinto Ltd were up 5.5% after state-owned Chinese aluminum company Chinalco held talks with Rio to take a stake in the firm. Stocks in Asia-Pacific outside Japan were down 1.85%, according to an MSCI index.
Hong Kong’s Hang Seng index fell 2.75% in thin volume, weighed by a 3.45% decline in HSBC Europe’s largest bank has seen its Hong Kong-listed stock post a sixth consecutive month of declines in January on fears it will have to follow other British lenders and raise capital or cut its dividend.
THE YEN’S TREND IS YOUR FRIEND
The yen rose against major currencies, proving the haven of choice for global investors seeking safety. “Basically, the market trend has not changed after data in the US and the euro zone showed faltering economies," said Yuichiro Nakamura, FX dealer at Shinkin Central Bank in Tokyo. “The yen is the key beneficiary, and the dollar is the next.”
The US dollar was at ¥89.62, slipping 0.3% from late US trade on Friday. The euro declined 0.8% to ¥114.05. The euro dipped to a two-month low against the dollar around $1.2715 amid anxiety about the slumping economy in Europe and ahead of a European Central Bank meeting this week.
The Australian and Indonesian central banks were also expected to set policy this week, with both expected to deliver interest rate cuts in hopes of easing the blow of the global recession. Japanese government bonds edged up with equity markets under pressure. The lead 10-year bond future rose 0.08 point to 138.99, though it has remained in a fairly narrow trading range for the last two months.
US Treasuries were higher after crashing in January. The benchmark 10-year note’s yield, which moves in the opposite direction of the price, was at 2.81% compared with 2.86% late on Friday in New York. The yield shot up 63 basis points in January, the biggest monthly increase since April 2004, according to Reuters data.
The move up in yields has narrowed their difference with corporate bond yields, increasing their appeal for investors as a hedge against adverse movements in government debt.
“A worse economy pushes government yields down but credit spreads wider. A better economy does the opposite. For high-quality bonds (A rated), these two effects could nicely offset each other, producing a similar return for the holder under either scenario,” said asset allocation strategists with JPMorgan in London in a note.
The US crude oil future for March delivery has kept above $40 a barrel for about two weeks, with the market speculating on additional measures by OPEC to put a floor under prices. (Reuters)