Investor Alert

Asia Markets

Dec. 3, 2012, 6:05 a.m. EST

Asia stocks end mixed, China struggles

By Chris Oliver and Sarah Turner, MarketWatch

HONG KONG (MarketWatch) — Asia’s major stock markets finished on a mixed note Monday, as upbeat Chinese manufacturing data weren’t enough to dispel concerns that the mainland’s recent economic recovery could fade out next year.

Japan’s Nikkei Stock Average (NIKKEI:JP:NIK)  climbed 0.1%, Australia’s S&P/ASX 200 index (S&P:AU:XJO)  advanced 0.6%, and South Korea’s Kospi (KOREA:KR:180721)  rose 0.4%.

Taiwan’s Taiex  added 0.3%, while Singapore’s Straits Times Index (SES:SG:STI) retreated 0.1% late.

The Asia Dow was 0.1% lower.

Hong Kong’s Hang Seng Index (HONG:HK:HSI)  tumbled 1.2% after rising 0.6% in early moves to near its highest level for the year.

The Shanghai Composite Index (SHE:CN:000001) ended down 1%, while the Shenzhen Composite Index finished down 2.5%.

Stimulus in China

Capital Economics said China’s rebound would likely begin to fade out next year if the government doesn’t roll out new programs to keep channeling money into the economy.

“In these circumstances the current pickup in China’s growth will only continue if the government introduces further stimulus,” Capital Economics strategists said in a recent note.

Meanwhile, a pair of closely watched business surveys gave Asia investors some reason for optimism, as both data sets showed Chinese manufacturing grew last month.

The government-sponsored version of the November manufacturing Purchasing Managers’ Index rose to 50.6, up 0.4 point from October.

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The result was just below economists’ expectations but was above the 50-mark separating growth from contraction. Read: Chinese manufacturing grows in November

Meanwhile, the final version of HSBC’s privately compiled version of the China manufacturing PMI index, released Monday, also showed improvement. The figure rose to 50.5 from 49.5 in October, its first move above 50 in more than a year.

HSBC chief China economist Hongbin Qu said the data confirmed that the Chinese economy “continues to recover gradually. We expect [gross domestic product] growth to rebound modestly to around 8% in the fourth quarter as the easing measures continue to filter through.”

Ben Kwong, chief operating officer at KGI Asia, said that Chinese share- market performance currently isn’t taking its cues from the economic outlook but is reflecting structural problems, including weak investor confidence. Read Craig Stephen’s column the headwinds facing China’s stock markets.

“That’s why, despite the economic outlook being quite upbeat, the A-shares market is pretty weak. It’s dragging down Hong Kong as well,” he said.

Correctly priced?

Still, other analysts viewed the stock market as correctly pricing in deteriorating conditions next year.

Barclays analysts warned against dismissing the weakness in Shanghai stocks, saying it “reflects rational investor behavior given the outlook for corporate profits and policy easing.”

HSBC analysts said domestic investors were also wary about additional shares flooding the market. The lockup period for a large number of shares will expire in December, bringing the total value of newly floatable shares eligible on ChinNext to 16.4 billion yuan ($2.6 billion), according to HSBC.

Banks were among the weak spots in Shanghai trading Monday, with China Merchants Bank Co. (SHG:CN:600036) (OTC:CIHKY)  down 1.1% and Bank of Communications Co. (SHG:CN:601328)   (OTC:BCMXY)  off 0.5%.

Chinese property firms saw an early rally, helped by separate statistics showing the average housing price in 100 Chinese cities accelerated their gains in November. Read: China housing-price gains accelerate, data show

Some property shares held those gains, with Agile Property Holdings Ltd. (HKG:HK:3383)   (OTC:AGPYY)  up 0.4%, and Hong Kong’s Wharf Holdings Ltd. (HKG:HK:4)   (OTC:WARFF)  adding 0.4%.

But other names saw the early advance disappear, with China Resources Land Ltd. (HKG:HK:1109)   (OTC:CRBJF)  trading 2.7% lower, swinging from a 2.9% gain early in the day.

In mainland trading, the real-estate rally proved more durable, with China Vanke Co. (SHE:CN:000002)   rising 0.6% in Shenzhen, and Gemdale Corp. (SHG:CN:600383)  up 2.3% and Poly Real Estate Group Co. (SHG:CN:600048)  climbing 2.4% in Shanghai.

Hong Kong

Back in Hong Kong, top-weighted Hang Seng Index component HSBC Holdings PLC   (HKG:HK:5)   (LON:UK:HSBA)  was down 0.6% in Hong Kong after its plan to buy Royal Bank of Scotland Group PLC’s  Indian assets collapsed.

But shares of Cathay Pacific Airways Ltd. (HKG:HK:293)   (OTC:CPCAY)  lost 1.6% as CNBC reported that the airline’s staff was unhappy with the size of a planned salary increase, with labor action a possibility.

Despite gloom on the Chinese mainland, the tone of the Hong Kong market remained “quite firm,” said Kwong.

“If there is progress on the fiscal cliff, then overseas markets will grind up, and that’s positive for Hong Kong,” he said, adding that the Hong Kong market had seen recent fund inflows from offshore investors.

In Tokyo, Japanese industrial firms with exposure to China were among the advancers.

Hitachi Construction Machinery Co. (TKS:JP:6305)   (OTC:HTCMY)   — which saw almost 10% of its fiscal first-half sales derived from China — moved 1.6% higher. Japan Steel Works Ltd. (TKS:JP:5631)   (OTC:JPSWY)  advanced 1.3%. and Sumitomo Heavy industries Ltd. (TKS:JP:6302)   (OTC:SOHVY) rallied 3.5%.

Technology firms likewise gained ground in Japan, as the yen extended its recent downward march, sending the dollar (XTUP:USDJPY)  and euro (XTUP:EURJPY)  near their highest levels against the currency since April.

Renesas Electronics Corp. (TKS:JP:6723)   (OTC:RNECY) rose 0.7%, Canon Inc. (TKS:JP:7751)   (NYS:CAJ) climbed 2.7%, and Panasonic Corp. (TKS:JP:6752) advanced 0.7%.

Tech firms gained in South Korea, along with autos. Samsung Electronics Co. (KRX:KR:005930)   (OTC:SSNLF)  rose 1.7%, while Kia Motors Corp. (KRX:KR:000270)   (OTC:KIMTF)  climbed 1.1%, and Hyundai Motor Co. (KRX:KR:005380)   (OTC:HYMTF)  advanced 1.3%.

In Australia, financials saw some buying, with Australia & New Zealand Banking Corp. (ASX:AU:ANZ)   (OTC:ANEWF)  up 1.4%, and asset-manager AMP Ltd. (ASX:AU:AMP)   (OTC:AMLTF)  trading 2.4% higher.

Stores in Sydney

Major department-store operators fell in Sydney, however, with David Jones Ltd.  down 2% and Myer Holdings Ltd. (ASX:AU:MYR)  lower by 1.8%, after data showed that adjusted Australian retail sales for November were unchanged, missing consensus expectations for a 0.4% advance.

Resource firms were broadly lower across the region after a relatively poor session for metals on New York on Friday, with gold miners particularly weak. Newcrest Mining Ltd. (ASX:AU:NCM)   (OTC:NCMGF)  declined 1.5% in Sydney, and Zijin Mining Group Co. (HKG:HK:2899)   (OTC:ZIJMY)  falling 1% in Hong Kong.

Nomura Asia equity strategist Michael Kurtz holds a broadly upbeat stance on Asia stocks as the year-end approaches, saying that while “the U.S. ‘fiscal cliff’ is center-screen ... looking past it, U.S. and Chinese demand are on a vital upswing.”

Kurtz says that “a number of political and economic clouds that darkened the investment landscape during much of 2012 have begun to clear,” and that this development opens the way “for a less tortuous upward path for stocks for much of 2013” in Asia.

Mainland-listed liquor shares fell sharply as the sector became the latest focus of product-safety concerns

Shenzhen-listed Luzhou Lao Jiao Co. (SHE:CN:000568)  tumbled 7.5%.

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