Finance and resources shares lead slump in Asian markets

By Chua Kong Ho  |   2008-6-13  |     NEWSPAPER EDITION

ASIAN stocks fell the most in three months, led by financial companies and commodity producers, on concern that surging inflation and credit turmoil will derail growth.

DLF Ltd, India's biggest property developer, dropped after the nation's central bank unexpectedly raised interest rates. Babcock & Brown Ltd, Australia's second-largest securities firm, plunged a record 28 percent after saying it's being targeted by short sellers. BHP Billiton Ltd, the world's largest miner, dropped in Sydney and JFE Holdings Inc tumbled in Tokyo on speculation that demand for raw materials and steel will slump, Bloomberg News said.

"Rising inflation is a clear and present danger," said Paul Joseph Garcia, chief investment officer at the Manila unit of ING Investment Management Ltd, which oversees US$565 billion in global assets.

"Inflation will compress margins of companies and slow consumer demand. We could see another wave of earnings downgrades if oil prices stay elevated," he said.

The MSCI Asia Pacific Index lost 2.7 percent to 140.48 as of 7:08pm yesterday in Tokyo, its biggest decline since March 17. The measure has slumped 6.6 percent this week, set for the worst weekly performance since August last year.

Japan's Nikkei 225 Stock Average slumped 2.1 percent to 13,888.60. Mitsui OSK Lines Ltd, the biggest merchant fleet operator, dropped after shipping rates fell the most in 11 weeks.

Australia's S&P/ASX 200 Index lost 2.5 percent. A report showed the economy unexpectedly lost jobs in May, ending a record employment boom. Most other Asian markets fell.

Standard & Poor's 500 Index futures gained 0.4 percent recently. Stocks retreated in the United States on Wednesday, driving the S&P 500 to its lowest level in two months.

DLF dropped 4.1 percent to 491.1 rupees (US$11.49). HDFC Bank Ltd, India's third-largest bank, dropped 1.8 percent to 1,163.5 rupees.

The Reserve Bank of India increased the repurchase rate to 8 percent, the first increase in 15 months, joining other Asian central banks in Indonesia, the Philippines, Vietnam and Pakistan in raising borrowing costs.

HSBC Holdings Plc advised investors to sell all their Asian emerging markets stocks and accumulate cash instead, saying accelerating inflation increases the risk of higher interest rates and lower earnings.

Short Selling

Babcock & Brown tumbled 28 percent to A$6.90 in Sydney, cutting the company's market value to A$2.3 billion (US$2.15 billion). Creditors have the right to demand early repayment of debt should Babcock's market capitalization remain below A$2.5 billion for longer than four months, the company said.

Babcock has been targeted by unidentified short sellers, spokeswoman Erica Borgelt said in an interview yesterday. Short sellers sell borrowed shares, expecting to buy them back at a profit after prices fall. Macquarie Group Ltd, Babcock's bigger Australian rival, slumped 5.6 percent to A$50.69.

The plunge echoed a decline in Lehman Brothers Holdings Inc, the fourth-biggest US securities firm, which sank 14 percent to US$23.75 in New York on Wednesday. Lehman has fallen 30 percent in the last four trading sessions as options traders raised bets the shares will sink as low as US$15 by next month.

BHP dropped 3.8 percent to A$41.80. JFE, the world's third-largest steel maker, slumped 6.7 percent to 5,570 yen (US$51.66).

A measure of raw materials producers sank the most since February 6 on concern that rising inflation will lead to higher borrowing costs, cutting demand for copper, steel and aluminum.