Asia Stocks Fall Sharply, But Japan Gains

Politics worked to split stock performance in Asia on Thursday, with Japanese shares getting a lift from expectations for new elections, while China’s leadership change did little to boost shares, and U.S. political divisions dampened broad market sentiment.

Japan’s Nikkei Stock Average  gained 1.4%, but South Korea’s Kospi  fell 1.4%, and Australia’s S&P/ASX 200 index  retreated 0.9%.

Hong Kong’s Hang Seng Index  dropped 1%, while the Shanghai Composite Index  lost 0.6%, showing little reaction to the announcement of China’s new Communist Party leaders.

The losses outside of Japan followed a sharp drop Wednesday on Wall Street, as renewed tension in the Middle East and worries about the U.S. “fiscal cliff” of potential tax hikes and spending cuts kept investors on edge.

Newly re-elected president Barack Obama reiterated in a press conference Wednesday that taxes on the wealthy must go up. Obama is set to meet with congressional leaders on Friday to discuss the country’s fiscal situation. See: MarketWatch’s full coverage of the fiscal cliff.

“Markets continue slowly to price in the fiscal-cliff risks. President Obama’s press conference suggests a significant gap remains between Republicans and Democrats on key issues, reducing the likelihood for a compromise in the eyes of the market,” strategists at Barclays Capital said, referring to the U.S. leader’s comments Wednesday.

“A cautious view on risky assets remains warranted until cliff risks have been successfully dealt with,” the Barclays analysts said.

There were some big share-price moves in Asia on Thursday, with Hong Kong-listed Tencent Holdings Ltd.   falling 4.9% after its third-quarter results missed estimates, with the Internet firm warning that online-advertising revenue growth may slow, due partly to softer Chinese economic growth.

On the other hand, Hong Kong shares of Esprit Holdings Ltd.    soared 20% after Michael Ying — the apparel firm’s chairman from 1993 to 2006 — upped his stake in the firm to 5.99% from 4.79%, according to reports.

In Tokyo, consumer electronics giant Sony Corp.   tumbled 9.8% after the global conglomerate announced after Wednesday’s close that it plans to issue the equivalent of about $1.85 billion in convertible bonds.

Yen juices Tokyo

Exporters were broadly stronger in Japan, however, as currency moves gave most firms a boost.

The dollar  rose firmly above 80 yen overnight — and had climbed to ¥80.89 by Thursday afternoon — amid speculation that the country is close to an election that could propel opposition leader Shinzo Abe, a monetary dove, to become the next prime minister.

Likewise, the euro  rose above the ¥102 level overnight, and then breached the ¥103 level during Asian trade.

“The dollar/yen remains better bid amid expectations that parliament will be dissolved tomorrow for snap elections on Dec. 16,” said Sue Trinh, a strategist at RBC Capital Markets.

Among tech names, NEC Corp.   rose 4.4%, and Nintendo Co.   climbed 2%.

In the auto sector, Mazda Motor Corp.  rallied 5.6%, and Nissan Motor Co.   rose 3.4%.

Toyota Motor Corp.   climebd 3.8% despite a 2.77-million-vehicle recall announced just before the close on Wednesday.

Tech and auto competitors trading in South Korea didn’t fare so well, with Hyundai Motor Co.   down 2.1% and chip heavyweight Samsung Electronics Co.    retreating 1.9%.

Back in Tokyo, real-estate companies were also notably higher amid the monetary and fiscal easing speculation, with Sumitomo Realty & Development Co.    up 4.4%, and Mitsubishi Estate Co.    ahead by 3.3%.

Banks also rallied, with Japan’s big three lenders taking back some ground lost Wednesday ahead of earnings reports.

Mitsubishi UFJ Financial Group Inc.  rose 3.5%, Mizuho Financial Group Inc.  added 3.3%, and Sumitomo Mitsui Financial Group Inc.   — the only of the three to post a rise in profit — gained 3.6%.

The trio of banks reported a collective $7.5 billion write-down for their stock holdings, but they managed to reap gains from their bond portfolios.

China’s politics

China announced Thursday that Vice President Xi Jinping would assume leadership of what some reports have suggested will be a more conservative leadership team. Hong Kong-based strategist Andrew Sullivan also noted that Zhou Xiaochuan will step down as governor of the People’s Bank of China, with Wang Qishan to take over.

“He will face a tough job of how to continue the financial reforms already set in motion. This comes as total Chinese bank bad loans [have] increased,” said Sullivan.

Lenders fell in Hong Kong on Thursday. with Bank of Communications Co.   down 1.5%, while Industrial & Commercial Bank of China Ltd.   moved lower by 1%.

In Shanghai trade, China Construction Bank Corp.  lost 1.2%, while Bank of China Ltd. fell 1.1%.

Chinese commodity-linked firms also fell, with Aluminum Corp. of China Ltd.     down 2.1% in Hong Kong and 2% lower in Shanghai. China Petroleum & Chemical Corp.   fell 1% in Hong Kong.

Australian miners, a key supplier of metals to facilitate China’s infrastructure development, also lost ground, with Rio Tinto Ltd.    down 1.7% and BHP Billiton Ltd.    lower by 1.9%.

Also in Sydney, Qantas Airways Ltd.    jumped 4.1% after it told investors that it would buy back 100 million Australian dollars ($103.5 million) worth of shares, starting next month.

The carrier also said it expected to report a fiscal first-half adjusted pretax profit in a range of A$180 million to A$230 million, roughly flat from a year earlier

Marketwatch