Asia stocks slide on growing

• tanvi_singh
• July 22, 2010

The yen neared a 7-1/2-month high and Asian stocks slid on Thursday after comments by the head of the Federal Reserve added to concerns about the US economy, causing investors to dump riskier assets ahead of European bank stress test results.

The conclusion of the European Union examination of banks’ financial strength is due on Friday and is expected to show generally positive results for Greece, Italy and Ireland and a few failures in Portugal and Spain.

However, if investors perceive the test results as credible, do not expect risk-taking to bounce back for long, given that Europe’s fundamental backdrop remains relatively grim, especially with fiscal austerity the norm, US fund managers and analysts said.

Ben Bernanke, the head of the Federal Reserve, said on Wednesday that policymakers expected US growth to be sustained despite recent signs of softening. He described the outlook as “unusually uncertain” but gave no indication that specific actions to deal with it are imminent.

“Those who had expected more were disappointed after Bernanke only said the Fed stands ready to ease monetary policy further,” said Hiroichi Nishi, general manager of equity marketing at Nikko Cordial Securities in Tokyo.

Japan’s Nikkei share average fell 1 per cent, on course for a fifth straight session of losses. The Nikkei has fallen 2.1 per cent so far in July, underperforming the S&P 500, which is up 3.8 per cent, and the FTSEurofirst 300, which has risen 2.5 per cent.

Short-term indicators pointed to oversold conditions, though persistent yen strength has dominated equity trading lately. As long as currency dealers keep aiming for 85 yen per dollar, Japanese equities could be under pressure.

The MSCI index of Asia Pacific stocks outside Japan slid 0.7 per cent, with healthcare and technology stocks the main drags.

The tech sector was weighed down after South Korea’s Hynix Semiconductor, the world’s No. 2 memory chip maker, said DRAM prices would fall in the current quarter, even though shipments were expected to grow. Hynix shares fell 4 per cent.

The yen rose across the board, benefiting from the increased risk aversion in financial markets. The US dollar fell 0.5 per cent to 86.48 yen , closing in on the 7-1/2-month low hit last week of 86.27 yen.

Japanese policymakers have been trying to talk the yen lower, fearing the country’s exporters would be hurt. Deputy Finance Minister Motohisa Ikeda on Thursday said Japan wants to avoid excessive rises in the yen but market reaction was muted.

However, traders appeared intent on testing what many believe to be the line in the sand at 85 yen per dollar, beyond which they expect Japan would take action to defend.

The yen has already risen more than 7 per cent against the dollar so far this year.
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• Last Modified: July 22, 2010
• Filed Under: Latest News, MARKETS, NATION, WORLD