Asian Stocks Post Worst Weekly Drop in 7 Months; China Slumps

By Chen Shiyin

March 3 (Bloomberg) — Asian stocks fell from records, posting the biggest weekly slump in seven months, amid a global rout that erased more than $1.5 trillion of stock-market value.

Market gains had been very fast up until now, when in fact, there were plenty of things to be cautious about such as the slowdown in the U.S. and a correction in Chinese stocks,'' said Masayuki Kubota, who oversees $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo. Industrial & Commercial Bank of China Ltd. led China's plunge on concern shares were too expensive and that the government may crack down on investments. U.S. reports that pointed to slower growth in the world's largest economy sent shares of Samsung Electronics Co. and other exporters lower. The Morgan Stanley Capital International Asia-Pacific Index dropped 3.5 percent to 142.78 this week, the biggest slump since the five days to July 14. All 10 industry groups declined. It rose to records on the first two days of the week before sliding 4 percent in three sessions. Japan's Nikkei 225 Stock Average dropped 5.3 percent this week, the biggest slump since the five days to June 9. Toyota Motor Corp. also declined after the yen this week strengthened the most against the dollar in 14 months, eroding the value of exporters' overseas sales. China's Shanghai and Shenzhen 300 Index ended the week 6.3 percent lower. The country's stocks fell the most in a decade on Feb. 27 after the government approved a task force to clamp down on illegal share offerings and other banned market activities. ICBC, the nation's largest lender, lost 6.6 percent this week. Wuliangye Yibin Co., China's biggest spirits maker, plunged 15 percent. `Psychologically Fragile' The 300 index has gained 22 percent so far this year, after more than doubling in 2006. The gauge is valued at 39 times earnings, compared with 15 times for MSCI's Emerging Markets Index.The rally pushed the whole market to a level where valuations were exceptionally high and that made investors psychologically fragile,’’ said Li Xuewen, who manages about $284 million at Invesco Great Wall Fund Management Co. in Shenzhen. There is no reason for you to be a bull on China stocks any more.'' The drop sparked declines in the region's emerging markets. Malaysia's Kuala Lumpur Composite Index plunged 9.3 percent, the region's worst performer this week. Benchmarks in India, South Korea and the Philippines also fell more than 3 percent. `Hard Times' In the U.S., the Dow Jones Industrial Average fell 4.2 percent this week. Stocks across Europe also declined.If the U.S. market hits hard times and starts getting corrected, it will have a significant impact all around the world,’’ said Kim Young Joon, who oversees about $1.4 billion at Nonghyup CA Asset Management Co. in Seoul. The U.S. is the infrastructure, the engine of the world economy. That's what makes it important.'' Among stocks dependent on the U.S. market, Samsung, South Korea's largest exporter, slid 4.6 percent this week. Westfield Group, the world's biggest owner of shopping malls, slumped 7.9 percent in Australia, while Honda Motor Co., Japan's No. 2 automaker by sales, lost 7.4 percent. Sales of new homes in the U.S. dropped 16.6 percent to an annual rate of 937,000 in January, according to a Feb. 28 report, lower than any economist had forecast in a Bloomberg News survey. Additionally, the Commerce Department said gross domestic product last quarter rose at a 2.2 percent annual rate, compared with an initial assessment of 3.5 percent growth reported on Jan. 31. Signs of Slowdown? Jobless claims in the increased last week, the U.S. Labor Department said on the following day. Economists at UBS Securities LLC and Morgan Stanley were among those that lowered forecasts for next week's February jobs report after the number of people on unemployment rolls rose to the highest in 14 months. Toyota, Japan's largest automaker, lost 6.3 percent this week. Sony Corp., the world's No. 2 maker of consumer electronics, fell 8.2 percent. Japan's currency gained almost 3 percent against the dollar this week, the biggest increase since the period ended Dec. 16, 2005, as fund managers unwind so-called carry trades, buying the currency to settle their loan obligations.The slide this week was part of the global move by investors selling their equities to secure profits before it’s too late,’’ said Koichi Takatsuka, who oversees $1 billion at UAM Japan Inc. in Tokyo. ``The currency direction will hold a key for markets, as it has become quite difficult to buy exporters.’’

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net
Last Updated: March 2, 2007 18:31 EST

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