Asia Stocks Drop on Fed Stimulus, China Lending Concern

Asian stocks dropped the most in two weeks amid concern a credit squeeze in China will curb growth and after a better-than-forecast U.S. jobs report fueled concern that the Federal Reserve may begin reducing stimulus this year.

BHP Billiton Ltd. (BHP), the world's biggest mining company, fell 2.1 percent in Sydney as metals prices retreated the most in two months. Asiana Airlines Inc. tumbled 5.8 percent in Seoul after one of its planes crashed at San Francisco International Airport. Zijin Mining Group Co. (2899) dropped 7 percent in Hong Kong after China's biggest gold miner by market value said profit may slump as much as 55 percent.

The MSCI Asia Pacific Index slid 1.6 percent to 129.19 as of 4:39 p.m. in Hong Kong, with about four shares falling for each that rose. All 10 industry groups on the gauge retreated. China's money-market cash squeeze is likely to reduce credit growth this year by 750 billion yuan ($122 billion), an amount equivalent to the size of Vietnam's economy, according to a Bloomberg News survey of analysts.

"Growth is reasonably soft in China and will probably undershoot official targets," Sean Fenton, a Sydney-based fund manager who helps oversee about $1 billion at Tribeca Investment Partners, said by telephone. "They are struggling competitively in the manufacturing sector and cracks may appear in the banking system. In the U.S., it's highly likely you'll start to see tapering before the end of the year."

Goldman Sachs Group Inc. and China International Capital Corp. were among brokerages in the past two weeks that reduced Chinese annual economic growth projections this year to 7.4 percent, below the government's 7.5 percent goal.

Chinese Credit

Hong Kong's Hang Seng Index (HSI) dropped 1.3 percent with volume 12 percent below the 30-day average for the time of day. China's Shanghai Composite Index fell 2.4 percent.

Chinese credit data for June that is due to be released this week will give investors clues to how much the cash squeeze, which sent interbank borrowing costs soaring to records last month, is affecting the world's second-biggest economy. Whether a slowdown extends into the second half may hinge on how effectively Premier Li Keqiang can redirect funding after his clampdown on speculation.

"The biggest concern is whether this will lead to a deleveraging cycle where lending and borrowing become more difficult and then the economy slows dramatically into the later part of the year," Hans Goetti, Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which oversees about $1.5 billion, told Bloomberg TV. "The tapering by the Fed has become much more of a reality after the jobs report."

Regional Gauges

Japan's Topix index slid 1.4 percent. Australia's S&P/ASX 200 Index sank 0.7 percent and South Korea's Kospi index retreated 0.9 percent. Singapore's Strait's Times Index lost 0.4 percent and Taiwan's Taiex slid 1.4 percent. New Zealand's NZX 50 Index rose 0.1 percent.

Futures on the Standard & Poor's 500 Index (SPX) rose 0.3 percent. Alcoa Inc. will unofficially start the second-quarter U.S. earnings season as the aluminum producer reports results after the market closes in New York today.

U.S. payrolls rose by 195,000 workers for a second straight month, the Labor Department reported July 5 in Washington. The median forecast in a Bloomberg survey projected a 165,000 gain after a previously reported 175,000 increase in May. The jobless rate stayed at 7.6 percent, while hourly earnings in the year ended in June advanced by the most since July 2011.

Fed Tapering

"We brought forward our forecast for the start of Fed tapering to September as a result of the payrolls report, having previously thought early next year," Paul Brunker, head of equity strategy in Australia for JPMorgan Chase & Co., said by telephone from Sydney. "The market doesn't look like a raging buy. Profit growth is probably stalling and certainly slowing."

The MSCI Asia Pacific index, the benchmark regional equities gauge, fell 9 percent through last week from a five-year high on May 20 amid concern the Fed will begin tapering stimulus as China's economy slows and Japan puts off unveiling economic reform policies until after upper house elections later this month.

That left the Asia-Pacific gauge trading at 12.8 times average estimated earnings on July 5 compared with 14.8 for the Standard & Poor's 500 Index and 12.8 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Japan Reforms

Japan's Topix index surged 4.8 percent last week, capping its biggest three-week advance since April 2009, and the Nikkei 225 Stock Average (NKY) climbed 4.6 percent amid a weakening yen and optimism Prime Minister Shinzo Abe will push through economic reforms after winning upper-house elections on July 21. The yen capped its biggest three-week drop against the dollar since 1999 last week, according to data compiled by Bloomberg.

Raw-material shares tumbled after the London Metal Exchange LMEX Metals Index declined 2.6 percent on July 5, the most in two months. BHP Billiton sank 2.1 percent to A$30.95 and Rio Tinto Group, the world's second-biggest mining company, declined 2 percent to A$51.64. in Sydney.

Zijin Mining slumped 7 percent to HK$1.47 in Hong Kong after the firm said a drop in gold and copper prices curbed earnings in the first half.

Asiana Airlines (020560) retreated 5.8 percent to 4,825 won in Seoul. Two people died and more than 300 escaped, some sliding down emergency exits, before a fire swept through Asiana's Boeing Co. 777 plane, which crashed while landing in San Francisco July 6. It was the first fatal passenger crash by a South Korean airliner since 1997.

Daiwa House Industry Co. slumped 9.4 percent to 1,780 yen after Japan's biggest homebuilder said it plans to raise as much as 137.9 billion yen ($1.37 billion) in Asia's biggest share sale this year by a property company.