China Drags Asia Down

Ivaylo
30 May, 2007
New York City

Asian markets ended mostly lower on Wednesday. The Shanghai Composite Index in China plunged after the government surprisingly tripled duties charged on stock trades, to cool speculative activity and block what is believed is a huge equity-market bubble. Other markets advanced on Wednesday, as Thailand recorded modest gains, while South Korea ended at another record close. Japan closed lower on broad-based selling.

[R]8:30AM Asian markets end lower Wednesday after China’s decision to triple duties on stock trades.[/R]

Asian markets finished lower Wednesday. The Shanghai Composite Index finished down 6.5% at 4,053.09. Premier Wen Jiabao cabinet ordered China''s Ministry of Finance early Wednesday to triple a trading transaction charge, called the stamp tax, to 0.3% from 0.1%. In response, Chinese stocks marked a broad-based decline in heavy trading. Investors fear that the current measures may to lead to a broad decline, as the measures may hurt the newly emergent middle-class in China. Foreigners are largely barred from trading in the country as the quota for foreign investment has only recently been raised to $30 billion from $ 10 billion. That leads to worries that a big setback in prices could hurt consumer spending and weaken economic growth.

Elsewhere in ther egion, Japanese Nikkei 225 Average closed 0.5% lower, losing 84.30 points to 17,631.56. Hong Kong Hang Seng Index pared sharper losses in early session to end 0.9% lower, losing 175.83 points to 20,253.17. South Korean Kospi Index advanced 0.1% to a record 1,662.72, Australian S&P/ASX 200 lost 1.2% to 6,243.4 and New Zealand NZX-50 shed 0.7% to 4,279.62. Taiwan Weighted Price Index retreated 0.4% and Singapore Straits Times Index recovered from sharp losses mid-session to end 0.5% lower. Thailand SET Index added 0.9%.

[R]7:30AM NY-6:30PM Mumbai Sensex ends lower on late-hour drop in IT stocks.[/R]

The Sensex on BSE finished Wednesday 96.83 points, or 0.67%, lower at 14,411.38.

The market-breadth was negative as there were three decliners for every two advancers. As there were 991 stocks which advanced, 1,594 stocks declined and 67 stocks remained unchanged. Of the 30 stocks in the Sensex, only seven advanced, while the rest declined. The turnover on BSE was Rs 4,737 crore, compared with Rs 4,605.18 crore on Tuesday. On NSE, the turnover was Rs 11,123.09 crore, much higher than Rs 9,340.58 crore on Tuesday.

Economic news

India is the third emerging stock market after China and Russia to go beyond $1 trillion in value, supported by the fastest economic growth in 60 years, a strong rupee and overseas investment. Indian economic growth has averaged 8.6% for the past four years aiding earnings growth of as much as 35% for the year ended March 31. Overseas funds are also helping the stock market after buying a net $3.76 billion of equities this year.

The rupee ended yesterday at its highest level in nine years on speculation that the size of capital inflows will offset the Reserve Bank of India’s efforts to curb the surge of the rupee.

India will buy only 300,000 tonnes of wheat on account of high prices quoted in a tender floated last month for one million tonnes, a senior government official said yesterday.

Trading highlights

New issue MIC Electronics was the most active stock with a turnover of Rs 492.60 crore followed by Larsen & Toubro and Orbit Corp. MIC Electronics ended at Rs 335.65 on BSE, a nearly 124% over its IPO price of Rs 150 per share.

Advancers

Larsen & Toubro rallied over 7% to Rs 1,994. L&T hit a record high of Rs 2,009, in intra-day trade. It posted 50% increase in net profit to Rs 701 crore in fourth-quarter of fiscal 2007 from Rs 467 crore in the comparable period a year earlier. Sales advanced 35.01% to Rs 6,248.24 crore against Rs 4,627.87 crore in previous period.

Hero Honda surged 1.7% to Rs 697, and HDFC spurted over 1% to Rs 1,833. Bajaj Auto settled 0.4% higher at Rs 2,201, while Gujarat Ambuja added 0.3% to Rs 115.

Decliners

Reliance Communications led the decline, down 3.8% to Rs 501 while Reliance Energy tumbled 3.7% Rs 535. HDFC Bank shed 3.5% to Rs 1,105.

Engineering large-cap BHEL which struck a record high of Rs 2,922.50 in intra-day trade, dipped on profit booking. It lost 3% to Rs 2,768. It had reported 33% increase in net profit in fourth-quarter of fiscal 2007 to Rs 1,150.37 crore from Rs 867.95 crore in the comparable period a year earlier. Sales rose to Rs 6,919.68 crore, from Rs 5,515.69 crore a year earlier.

Hindalco dropped 2.7% to Rs 141. Infosys slipped 2.4% to Rs 1,904. Maruti and Hindustan Lever shed around 2% each to Rs 803 and Rs 199, respectively. TCS and Satyam lost 1.5% each to Rs 1,214 and Rs 465, respectively, while ICICI Bank dropped 1% to Rs 911. Index heavy Reliance Industries declined 0.1% to Rs 1,755 on 8.54 lakh shares.

[R]6:30AM European markets decline Wednesday, reacting to Chinese economic measures.[/R]

European markets were lower on Wednesday. By mid-day trading, Frankfurt Xetra Dax shed 0.8% to 7,721.72, the CAC 40 in Paris lost 0.8% to 6,010.57 and London FTSE 100 slipped 0.7% to 6,558.2. National benchmarks fell in all 17 western European markets that were open.

Advancers

British Energy Group, the U.K. biggest electricity generator, gained 1.5%. The company posted an 8.1% rise in full-year profit to 465 million pounds, or $921 million.

LogicaCMG rallied 4.3%. Permira Advisers LLP, Europe largest leveraged buyout fund, is examining a potential takeover bid for the U.K. company following news that Martin Read will step down as chief executive officer.

Unibail Holding, largest real estate investment trust in France, added 1.7%. Air France-KLM, the biggest European airline, climbed 1.5%. The companies are due to join the CAC 40 Index on June 18.

Decliners

Decliners with the greatest exposure to China included luxury goods groups. Richemont, the Swiss watch maker whose strong first-quarter profit growth was partly thanks to consumer strength in China, fell 1.4%. Christian Dior shed 1.5%, while LVMH, which is also targeting growth in China, fell 1.8%.

Spanish construction group FCC fell 2.4% over disappointment that its Realia property joint venture prices its initial public offering at 8.80 euros, only midway between the indicative range of 7.90euros to 9.70 euros.

Shares of Statoil lost 1.5%. Norway largest oil and gas producer said first-quarter profit fell 28 % to $1.27 billion on lower energy prices. GlaxoSmithKline declined 2.1%, its lowest in two years, after Merrill Lynch reduced its recommendation for the world second-largest drugmaker, to sell from neutral.

Commodities

Crude oil rose in New York before a report that may show U.S. refinery production will pick up too late to satisfy peak demand. An attack on a Nigerian pipeline helped push prices higher. Crude oil for July delivery was at $63.55 a barrel, up 40 cents, in after-hours electronic trading on the New York Mercantile Exchange. Brent crude oil for July settlement was at $68.39 a barrel, up 29 cents, today on the London-based ICE Futures exchange.

Gold for immediate delivery in London gained 60 cents, or 0.1%, to $657.45 an ounce, while silver dropped 2.5 cents to $13.16 an ounce.

Currencies

The euro was down slightly against the U.S. dollar Wednesday following an unexpected rise in U.S. consumer confidence. The euro bought $1.3434 in morning European trading, down from $1.3453 in New York late Tuesday. The British pound slipped to $1.9783 from $1.9800, while the dollar edged up to 121.59 Japanese yen from 121.55 yen.

[R]5:30AM Gold gains Tuesday on weaker dollar, energy, agricultural stocks also advance.[/R]

The weaker dollar helped boost the June contract for gold up $1.90 to settle at $657.20 an ounce on the New York Mercantile Exchange. Silver tracked gold higher, with the July contract adding 22.3 cents to close at $13.223 an ounce.

The world refined copper market saw a sharp production deficit in February compared with a year-ago surplus, according to the latest monthly bulletin from the International Copper Study Group. Copper for July delivery closed a fraction of a penny lower at $3.32 a pound on the Nymex.

Light, sweet crude oil for July delivery tumbled $2.05 to finish at $63.15 a barrel. June gasoline futures fell 10.58 cents to settle at $2.2979 a gallon. July corn dipped 11.2 cents to $3.646 a bushel on the Chicago Board of Trade. A bushel of wheat for July delivery shed 10 cents to $4.91, and July soybeans fell 15 cents to $7.974 a bushel.