Asia Stocks Weaken Ahead Of Chinese Holiday

Most Asian stock markets traded lower on Thursday, as Japanese shares retreated after rallying sharply in the previous session, while Chinese stocks slipped ahead of the Lunar New Year holiday.

Japan’s Nikkei Stock Average  lost 1% after gaining 3.8% on Wednesday to close at a four-year high. Despite the move lower, however, the benchmark was still up more than 9% since the start of the year.

In China, Hong Kong’s Hang Seng Index  lost 0.4% to pare year-to-date gains to 2.2%, while the Shanghai Composite Index  fell 1.3% to cut its 2013 advance to 5.9% ahead of the Lunar New Year holiday, which starts on Sunday.

“I think that investors are packing away for the New Year holiday. That’s why trading motivation is not great,” KGI Asia chief operating officer Ben Kwong said.

“The market sentiment has turned a bit cautious — A-shares have softened,” he said, referring to yuan-denominated Chinese shares. “I think this is reasonable, as the market has had a good run.”

Elsewhere in Asia, South Korea’s Kospi  slipped 0.2%, while Taiwan’s Taiex  traded flat, and Australia’s S&P/ASX 200 index inched up 0.3%.

U.S. stocks ended with mostly modest gains Wednesday, as earnings helped support the market, though the tech-heavy Nasdaq moved lower.

As in the U.S., earnings provided the focus in Australia on Thursday, with widely-owned telecom giant Telstra Corp.   up 1.5% after it posted a modest profit gain while keeping its dividend payout and full-year guidance unchanged.

National Australia Bank Ltd.   climbed 1.9%, helped by a 4% rise in quarterly adjusted earnings.

News Corp.    fell 2.6%, however, after the media major cut its fiscal year outlook, even as it reported its second-quarter net profit more than doubled. News Corp. owns MarketWatch, the publisher of this report.

Over in Tokyo, Sony Corp.   — due to post its own earnings later in the day — rose 3.9% after a deal announced Wednesday to form an electronic-parts-mounting joint venture with sewing-machine maker Juki Corp.  Shares of Juki surged 6.9%.

Japanese exporters and financials had put in a very strong performance on Wednesday, as the yen weakened to fresh multi-year lows against the dollar amid expectations for a more aggressive monetary policy stance at the Bank of Japan.

“Japan is dominated by weakness in the yen, which is favorable for the Nikkei,” said Kwong at KGI. “Although the move has been driven by expectations rather than fundamentals, it’s provided an excuse to buy” Japanese blue chips.

Still, Kwong said the yen hasn’t yet depreciated alarmingly, though if the dollar rises above ¥100, it “will raise concern about a currency war.” Currency war is a term used for competitive currency devaluation between countries trying to boost their export competitiveness.

On Thursday, the dollar  pulled back a bit against the yen to trade at ¥93.38 after rising as high as ¥94 at one stage on Wednesday.

Exporters retreated along with the U.S. currency, especially in the technology sector, where Citizen Holdings Co.    traded down 2.5% and Advantest Corp.    retreated 2.5%.

Earnings hit some Tokyo names hard, with Nikon Corp.   tumbling 18.4% and Yamaha Corp.  dropping 13.1% after both firms cut their full-year outlooks and posted below-forecast results.

On the other hand, a swing to profit and full-year forecast hike sent Mazda Motor Corp.   climbing 11.3%.

Some exporters were firmer in South Korea, where concerns about yen-fueled competition from Japanese firms have kept the market under pressure since the start of the year.

LG Electronics Inc.    climbed 1.6% while chip maker SK Hynix Inc.    rose 1.8%. .

Those gains may prove short-lived, according to Brown Brothers Harriman strategist Win Thin.

“The sharply weaker yen has negative implications for regional producers and exporters of high-end electronics and manufacturing, such as Korea and Taiwan,” he said.

In Hong Kong trading, computer maker Lenovo Group Ltd.   jumped 3.7% on news it will be included in the 50-component Hang Seng Index next month.

At the same time, shares of Aluminum Corp. of China Ltd.  , which Lenovo will be replacing in the benchmark, dropped 3.3%.

Other resource and energy firms were also broadly weaker in Hong Kong, with Jiangxi Copper Co.   down 1%, while China Petroleum & Chemical Corp.   declined 1.8%.

Conglomerate Citic Pacific Ltd.   fell 1.5%, while logistics firm Li & Fung Ltd.   shed 2.7%.

“I think that the [Hong Kong] market will be choppy around this level,” said Kwong. “It’s not so low anymore.”

“After the Lunar New Year, I think investors will shift attention to fundamentals — upcoming earnings and the health of the Chinese economy,” he said.

In mainland Chinese trading, banks were among the worst performers, with China Merchants Bank Co.   down 4% and China Citic Bank Corp.   down 4.1%.

Marketwatch