Asian Markets Slump On China's Decision, Concerns About Recovery

The markets across Asia, excluding India, ended in negative territory on Wednesday, reacting to the decision of the Chinese central bank to tighten the monetary policy by hiking the reserve requirements by 0.5% in an effort to cool off the growth momentum and rein in inflation. Concerns that global economic recovery might be derailed as well as softer commodity prices impacted market sentiment as traders preferred to lock in gains from recent rally and moved to the sidelines.

In Japan, the benchmark Nikkei 225 Index lost 144.11 points, or 1.32% to 10,735, while the broader Topix index of all First Section issues was down 10.11 points, or 1.06% to 944.

On the economic front, data released by Japan Machine Tool Builders' Association revealed that machine tool orders recovered strongly in December after steep falls in the past several months. According to the report, total orders for Japan-made machine tools surged up 62.8% year-on-year in December, following a 8.4% drop in the previous month.

Light sweet crude oil futures for February delivery ended at $80.09 a barrel in electronic trading, down $0.70 per barrel from previous close at $80.79 a barrel in New York on Tuesday.

Most of the stocks across the sectors ended in negative territory as traders availed the opportunity to unload shares related to China and also booked profits amid concerns that the stock market is getting overheated following recent gains.

Airlines were the major losers with the beleaguered Japan Airlines losing as much as 81.0.8% on huge volumes on concerns about looming insolvency filing and subsequent delisting from the market. The other airline company, All Nippon Airways, shed 2.37%.

Among machinery stocks, Daikin Industries lost 2.43%, Hitachi Construction Machinery slipped 2.34%, Komatsu Limited fell 2.86%, Kubota Corp. shed 2.67% and Japan Steel Works declined 2.44%.

Trading companies also ended in negative territory. Mitsubishi Corp. slumped 3.55%, Mitsui & Co. shed 3.71%, Toyota Tsusho Corp. declined 2.61%, Sumitomo Corp. fell 1.73% and Marubeni Corp. lost 1.83%.

Automotive stocks also slipped on profit taking. Toyota Motor Corp. lost 1.46%, Suzuki Motor slipped 1.11%, Nissan Motor fell 2.79%, and Honda Motor edged down 0.30%.

Bank stocks ended in negative territory. Sumitomo Mitsui Financial shed 2.43%, Mitsubishi UFJ Financial lost 1.84%, Resona Holdings fell 1.18% and Mizuho Financial slipped 0.56%.

In Australia, the benchmark S&P/ASX Index shed 31.40 points, or 0.64% to close at 4,868, while the All-Ordinaries Index ended at 4,900, representing a loss of 31.50 points, or 0.64%.

On the economic front, a report released by the Department of Education, Employment and Workplace Relations revealed that the country's monthly leading indicator of employment index rose to minus 0.716 in January from minus 0.743 reported in December. The rise in January was the seventh successive increase, after having declined for 18 consecutive months, confirming the prediction that employment is likely to grow more quickly than its long-term trend rate of 1.8%.

Light sweet crude oil futures for February delivery ended at $80.09 a barrel in electronic trading, down $0.70 per barrel from previous close at $80.79 a barrel in New York on Tuesday.

Mining and metal stocks ended in negative territory following drop in base metal prices in the international market. BHP Billiton declined 0.65%, Rio Tinto fell 1.60%, Fortescue Metals lost 1.92%, Gindalbie Metals slumped 5.14%, Iluka Resources declined 5.91%, Macarthur Coal slipped 0.94%, Murchison Metals shed 5.94% and Oz Minerals dropped 2.02%.

Oil stocks also ended weaker. Woodside Petroleum edged down 0.10%, Santos slumped 2.94%, Oil Search slipped 0.33% and Origin Energy shed 0.97%.

Gold stocks also ended lower after bullion prices declined sharply in the bullion market. Lihir Gold lost 2.34% and Newcrest Mining shed 1.18%.

Worley Parsons was the major loser in the market. The engineering and maintenance group company has lowered the profit guidance for full year 2010 citing weaker conditions in the U.S as the primary reason. The stocks slumped 11.45% following the downward revision.

Banking stocks also ended in negative territory. Commonwealth Bank of Australia declined 0.99%, National Bank of Australia slipped 0.48% and Westpac Banking shed 0.32%. However, ANZ Bank bucked the trend and ended in positive territory with a gain of 0.18%.

In Hong Kong, the Hang Seng Index ended sharply losing 578.04 points, or 2.59%, and closed at 21,749, reacting to the surprise tightening of the monetary policy in mainland China. The Chinese central bank raised the reserve requirement by 50 basis points, effective January 18, primarily with the intention of cooling off the growth and reigning inflation. Fears that this measure might derail the global recovery process triggered selling led by major Chinese banks. Bank of China lost 3.62%, China Construction Bank fell 3.89% and ICBC declined 3.58%. Of the 42 components in the index, as many as 38 stocks ended in negative territory.

In South Korea, the KOSPI Index ended in negative territory with a loss of 27.23 points, or 1.60% at 1,671, taking cues from other markets in the region which also ended lower on concerns China's move to tighten monetary policy might derail global economic growth. Foreign institutional investors and traders unloaded stocks and moved to sidelines awaiting further direction. Weak closing on Wall Street in the previous session also impacted market sentiment.

The Indian market reversed its early loss and ended moderately higher on Wednesday, shrugging off weak global cues and fears about a surprise monetary tightening in China. The People Bank of China on Tuesday raised banks' reserve requirements by 50 basis points effective January 18, sparking concerns that the move may dampen a nascent economic recovery. The Reserve Bank of India is set to review its monetary policy on Jan 29. There is an expectation that the central bank may follow suit to rein in inflationary expectations. The benchmark Sensex opened gap-down and fell to a low of 17,277 before finishing higher at 17,510, up 87 points or 0.50%, and the Nifty rose 24 points or 0.45% to 5,234.

Among other major markets open for trading in the region, Taiwan's Weighted Index lost 112.81 points, or 1.36% to close at 8,197, Straits Times Index in Singapore fell 27.73 points, or 0.95%, to close at 2,888, Indonesia's Jakarta Composite Index shed 26.68 points, or 1.00% to close at 2,633, and China's Shanghai Composite Index slumped 101.31 points, or 3.09%, to close at 3,173.