Asian Stocks Drop on Concern Fed Will Reduce Stimulus

Asian stocks fell for a second day as stronger growth in U.S. service industries fueled speculation the Federal Reserve will soon be able to reduce economic stimulus.

HSBC Holdings Plc (5) slumped 4.5 percent in Hong Kong after earnings at Europe’s biggest bank missed analysts’ estimates. Sony Corp. (6758) sank 5.5 percent in Tokyo after its board rejected billionaire Daniel Loeb’s call to sell a portion of its entertainment business, saying 100 percent ownership is crucial to the company’s success. Fonterra Shareholders Fund climbed 2.6 percent in New Zealand, recouping some of yesterday’s record decline after Russia and China halted imports of milk powder amid concern about tainted ingredients in some products from Fonterra Cooperative Group Ltd., the world’s largest dairy exporter.

The MSCI Asia Pacific Index sank 0.7 percent to 134.33 as of 11:03 a.m. in Hong Kong, with four stocks falling for each that rose. Futures on the Standard & Poor’s 500 Index (SPX) slipped 0.2 percent.

“The ramp-up in the U.S. economy is not only gaining momentum, but is accelerating,” Evan Lucas, a Melbourne-based market strategist at IG Markets Ltd., a provider of trading services for equities, currencies and commodities, said by e-mail. “This is increasing the hawkish view of the Fed. This is why the September taper talk will continue. The blueprint for monetary stimulus tapering will be laid out in September with the first wind-back in October.”

U.S. Services

The Institute for Supply Management’s non-manufacturing index for the U.S. rose to 56 in July, beating the median estimate of 53.1 and June’s 52.2 reading. Federal Reserve Bank of Dallas President Richard Fisher said the central bank is closer to slowing bond purchases that have stoked global equity gains. Australia will cut its benchmark interest rate by 25 basis points today, according to 26 of 27 economists surveyed by Bloomberg News.

Australia’s S&P/ASX 200 Index (AS51) lost 0.3 percent. Economists say the Reserve Bank of Australia will reduce its benchmark interest rate to 2.5 percent from 2.75 percent. Growth in Australia’s economy has been weakening over the past year as China slows, curbing demand for natural resources.

Japan’s Topix index lost 1.1 percent, falling for a second day, as the yen gained against the dollar. South Korea’s Kospi index (KOSPI) dropped 1 percent and New Zealand’s NZX 50 Index declined 0.3 percent. Singapore’s Straits Times Index slid 0.8 percent and Taiwan’s Taiex index fell 1.3 percent. Hong Kong’s Hang Seng Index declined 1.6 percent and China’s Shanghai Composite retreated 0.5 percent.

Asian shares last week capped a sixth week of gains and the S&P 500 Index climbed above 1,700 for the first time as central banks vowed to maintain stimulus and data showed U.S. economic growth beat projections in the second quarter.

Vocal Critic

The Fed’s Fisher, one of the most vocal critics of quantitative easing, warned investors not to rely on the central bank’s $85 billion in monthly bond purchases.

“Financial markets may have become too accustomed to what some have depicted as a Fed put,” or the idea that the central bank will loosen credit after a market decline, Fisher said yesterday in a speech in Portland, Oregon. “Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” and can lead to “serious mis-allocation of capital.”

The MSCI Asia Pacific Index yesterday traded at 13.2 times average estimated earnings compared with 15.5 for the S&P 500 index and 13.9 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Company Earnings

Of the 412 members of the Asia-Pacific gauge that have posted earnings this season, 50 percent have exceeded analysts’ estimates for profit and 48 percent for sales.

HSBC lost 4.5 percent to HK$85.50 in Hong Kong. First-half net income rose 22 percent to $10.28 billion, less than the $10.57 billion estimate of five analysts surveyed by Bloomberg. Chief Executive Officer Stuart Gulliver said the lender’s fast-growing emerging markets are slowing.

Sony retreated 5.5 percent to 2,019 yen in Tokyo. Daniel Loeb’s Third Point LLC has built a 6.9 percent stake in Sony and pushed the board to sell as much as 20 percent of its entertainment assets in an initial public offering. The board’s decision to reject this was unanimous.

Japan Exchange Group Inc. (8697) retreated 3.8 percent to 9,540 yen as Credit Suisse Group AG advised selling shares of the world’s second-biggest stock market operator. The analysts said there is “still a relatively large scope for a correction” in the share price, citing weaker trading volumes for equities and derivatives.

Yen Strengthens

Japanese exporters retreated as the yen gained 0.3 percent to 97.99 per dollar. A stronger yen cuts the value of overseas earnings at Japanese companies. Toyota Motor Corp. dropped 1.4 percent to 6,270 yen. Komatsu Ltd., a construction-machinery maker that gets about 30 percent of its sales in the Americas, slid 2.1 percent to 2,167 yen.

Fonterra advanced 2.6 percent to NZ$7.04. China stopped imports of whey protein and a dairy base powder from Fonterra used in infant formula and Russia temporarily suspended purchases of all New Zealand dairy products, New Zealand’s Trade Minister Tim Groser said yesterday. The stock yesterday fell the most on record.