Asian Stocks Rise as Chinese Investment Boosts Growth Optimism

Posted on 12 June 2009

Source: Bloomberg, June 11, 2009

Asian stocks advanced for a second day, led by mining and energy companies, as rising fixed-asset investment in China boosted confidence the global economy is recovering.


Rio Tinto Group, which gets 19 percent of its sales from China, jumped 5.5 percent on speculation metals demand will pick up. Nippon Steel Corp. gained 5.7 percent in Tokyo after the Nikkei newspaper reported the company is restarting some idled capacity. China Petroleum & Chemical Corp., the country’s biggest refiner, gained 2.3 percent in Hong Kong after one of its units forecast a return to profit.


“The outlook for commodities is getting brighter as the economic data improves, especially out of China,” said Nader Naeimi, a strategist at AMP Capital Investors in Sydney, which manages about $95 billion. “Asian markets should benefit as economic activity picks up steam and regional trade improves.”


The MSCI Asia Pacific Index gained 0.5 percent to 105.03 as of 7:21 p.m. in Tokyo, extending yesterday’s 2.4 percent jump. The gauge has climbed 49 percent from a five-year low on March 9, taking valuations of its companies to the highest in more than eight months.


Japan’s Topix Index gained 0.4 percent, with Toshiba Corp. rallying 8.2 percent following an upgrade from Nomura Holdings Inc. Taiwan’s Taiex Index jumped 1.6 percent, while South Korea’s Kospi Index gained 0.3 percent.


Phone stocks and utilities in the region fell, led by KDDI Corp.’s 3.7 percent decline, on speculation investors are shifting funds to companies more likely to benefit from economic growth. Li & Fung Ltd., a Hong Kong trading company, lost 1.4 percent as brokerages reiterated a call to sell the stock after a client filed for insolvency.


Inflation Concerns


Futures on the Standard & Poor’s 500 Index added 0.1 percent. The gauge lost 0.4 percent yesterday, led by financial companies, as a disappointing auction of 10-year Treasury notes and a jump in oil prices spurred concern higher interest rates and accelerating inflation will threaten the economic recovery.


Rio Tinto, the world’s third-largest mining company, jumped 5.5 percent to A$77.05. BHP Billiton, the world’s biggest mining company, added 1.5 percent to A$38.27.


BHP gets 20 percent of its revenue from China, where spending on factories, property and roads in the first five months of 2009 surged a more-than-estimated 32.9 percent from a year earlier, the statistics bureau said today.


Government Spending


It’s the latest sign that government measures worldwide to revive growth are working. Property investment in China, which has pledged 4 trillion yuan ($585 billion) of spending, climbed 6.8 percent in the first five months, the statistics bureau said yesterday.


Optimism for a recovery has driven the stock rally since March, lifting the average valuation of companies on the MSCI Asia Pacific Index to 1.5 times the book value of assets, the highest since Sept. 26.


The Japanese government today said gross domestic product shrank at a 14.2 percent annual pace last quarter, less than the 15 percent contraction expected by economists in a Bloomberg News survey.


Nippon Steel climbed 5.7 percent to 393 yen, while JFE Holdings Inc. rose 3.7 percent to 3,350 yen. Kobe Steel Ltd. added 6 percent to 195 yen. The three steelmakers are restarting some idled capacity because output at automakers and other manufacturers has hit bottom, the Nikkei reported.


BlueScope Steel Ltd., Australia’s largest steelmaker, surged 2.6 percent to A$2.82 in Sydney.


High Valuations


“There are expectations the economy will start to recover later this year and stocks will climb even further,” said Mitsushige Akino, who oversees about $560 million at Ichiyoshi Investment Management Co. in Tokyo. “As valuations are high, optimism alone isn’t enough for investors to buy more.”


Companies on Japan’s Nikkei traded at 42.5 times estimated profit for this fiscal year, the highest level in almost a month, according to gauge compiler Nikkei Inc. The 25-day Toraku index, a measure of daily stock winners and losers in Tokyo, jumped to 135.32 yesterday, above the 130 level that some traders use as a signal to sell.


China Petroleum, known as Sinopec, climbed 2.3 percent to HK$5.85. The company’s Sinopec Shanghai Petrochemical Co. unit said it expects to post a profit for the first half of 2009, compared with a net loss for the same period last year. Sinopec Shanghai jumped 7.3 percent to HK$2.80 in Hong Kong.


Toshiba, Japan’s biggest chipmaker, surged 8.2 percent to 384 yen. The company was raised to “buy” from “neutral” by analysts at Nomura who cited an improved balance sheet.


‘Defensive’ Stocks


KDDI slumped 3.7 percent to 494,000 yen, while smaller rival Softbank Corp., the sole provider of Apple Inc.’s iPhone in Japan, slid 1.3 percent to 1,908 yen. CLP Holdings Ltd., Hong Kong’s biggest power utility, dipped 0.5 percent to HK$51.80.


Telecommunication companies and utilities are in so-called defensive sectors that are considered to be relatively insulated against an economic slowdown. The two industries were the best performing of the MSCI Asia Pacific Index’s 10 groups at the height of the credit crisis in the fourth quarter of 2008.


“People are shifting to cyclical shares from defensive ones on expectations the global economy will recover,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co. in Tokyo, which oversees about $88 billion.


Li & Fung sank 1.4 percent to HK$21.85. German client Arcandor AG was handed over to administrators yesterday. Should Arcandor fail, Li & Fung’s writedown will probably be less than $68 million, Managing Director William Fung said.


Marisa Ho, an analyst at Credit Suisse Group in Hong Kong, maintained her “underperform” recommendation on Li & Fung, adding that the company will have to work harder to achieve its $20 billion target for 2010 revenue.


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