The selloff in the regional bourses triggered as investors became increasingly uncomfortable with the possibility that the Fed could start trimming back its bond-buying program as soon as next week following a spate of improving US economic data and as the U.S. House and Senate agreed on Tuesday to avert another government shutdown.
Investors continued reducing positions from riskier assets after statement from Federal Reserve officials (St. Louis Fed president James Bullard, Dallas Fed president Richard Fisher and Richmond Fed president Jeffrey Lacker) released early this week sparked speculation that the US central bank may announce a winding down of its stimulus program as early as this month.
James Bullard, the president of the Fed's St Louis branch, said in a speech at the CFA Society of St. Louis on Monday, that a small taper of the $85 billion a month asset-purchase program might be a possibility as policymakers wrestle with how to respond to signs of improvement in the world's biggest economy. Richmond Federal Reserve Bank President Jeffrey Lacker and Dallas Fed President Richard Fisher also said they think the central bank will soon consider a taper.
Meanwhile, staving off the threat of another government shutdown for two years in the US also fuelled speculation of potential Fed tapering of bond-buying program at its meeting next week. Congress was on the verge of the first bipartisan budget deal in nearly three decades on Tuesday night after Democrat and Republican negotiators unveiled a proposal to fix federal spending at $1.012tn. The long-awaited agreement struck between senator Patty Murray and congressman Paul Ryan staves off the threat of another government shutdown for two years and will relieve the worst effects of blanket budget cuts known as the sequester.
Congress has been deadlocked over the budget since Democrats lost control of the House in the 2010 midterm elections and the proposal from Murray and Ryan represents the first realistic chance of a divided government agreeing a formal budget since 1986. If passed by the House and Senate, the two-year deal would fix federal spending at $1.012tn in 2014 and $1.014tn in 2015 - roughly halfway between the $1.058tn sought by Democrats in the Senate and the $967bn proposed by the Republican-controlled House.
Barack Obama declared the budget deal a good first step and both House speaker John Boehner and majority leader Eric Cantor indicated they would allow a vote to pass with a mixture of Republican and Democrat support.
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The Federal Open Market Committee (FOMC) holds a two-day policy meeting on interest rates in the United States on 17-18 December 2013. The US central bank currently buys bonds worth $85 billion a month in a bid to hold interest rates low and encourage economic growth in the world's biggest economy. Fed's bond-buying program has been a source of liquidity for most Asian and emerging markets this year. Minutes of the Fed's October meeting released on 20 November 2013 showed officials may reduce their $85 billion a month of bond buying if the economy improves as anticipated.
Among Asian bourses, Australian share market declined for fifth consecutive session, dragged down by tracking negative overnight cues from Wall Street and as a reading of consumer confidence in Australia fell to its lowest level since July. Meanwhile, selling pressure intensified after Holden confirmed it would cease local production in 2017. The benchmark S&P/ASX 200 index declined 39.40 points to finish at 5104.20, while All Ordinaries Index (XAO) slipped by 36.70 points to 5109.50.
Holden, a subsidiary of General Motors (GM), has said it will stop making cars in Australia by the end of 2017. The move will result in nearly 2,900 people losing their jobs. The firm said a strong Australian currency, high manufacturing costs and a small domestic market were among the reasons behind its decision. Holden, which has made cars in Australia for nearly 65 years, will retain its sales unit and a parts distribution centre in Australia. "The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country," GM chief executive Dan Akerson said in a statement. "This includes the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world."
Shares of Australian mining and resources companies declined sharply, with BHP Billiton erasing 1.7% to A$36.18 even as it forecast a $3 billion annual gain from its U.S. Rio Tinto dropped 0.6% to A$65.77 and Fortescue Metals Group shed 0.5% to A$5.60. Alumina was down 1% to A$1.02 and Karoon Gas Australia lost 4.1% to A$3.76. Whitehaven Coal fell 5.7% to A$1.82. Oz Minerals shares tanked 14.24% to A$2.65 as investors reacted to its 2014 production guidance.
Yancoal shares jumped 9.9% to A$0.72 as Federal Treasurer Joe Hockey relaxed the foreign ownership rules applied to Yancoal's Chinese parent company Yanzhou. Yanzhou Coal Mining (01171) said the Treasurer of the Commonwealth of Australia announced today the removal of the foreign investment selldown conditions imposed on the company in connection with the merger of Yancoal Australia with Gloucester Coal in March 2012. These conditions originally required Yanzhou Coal to reduce its economic ownership of Yancoal Australia from about 78% to below 70% by 31 December 2013, to reduce its interest in certain underlying assets acquired when Yancoal Australia acquired Felix Resources in 2009 to no more than 50% by 31 December 2013, and to reduce its ownership of Premier Coal Ltd, Syntech Holdings Pty and Syntech Holdings II Pty Ltd or their underlying assets from 100% to below 70% by 31 December 2014.
In economic news, the Westpac/Melbourne Institute index of consumer confidence fell by 5.3 points (4.8 per cent) from a near 3-year high of 110.3 points in November to a 5-month low of 105.0 points in December. Confidence fell in NSW, Victoria, South Australia and Queensland but rose in Western Australia.
In Japan, shares on the Japanese financial market skidded, as investors were continuing to reduce their exposure to risk positions in the market on yen appreciation against the greenback and on caution ahead of the US Federal Reserve's monthly meeting next week. The benchmark Nikkei Stocks Average declined 96.25 points to 15515.06, while the broader Topix index dropped 5.88 points to 1250.45.
Export related stocks were lower in Tokyo, pressured by the yen hardening against the U.S. dollar and the euro. A stronger yen trimmed overseas earnings prospects when they repatriate it home. Mazda lost 1% to 478 yen. Tokyo Electron, a maker of industrial electronics that gets 24% of sales in the U.S., fell 2.2% to 5,380 yen. Yahoo Japan rose 4.7% to 585 yen after JPMorgan Securities Japan initiated its rating for the company at "overweight" while setting its target price at Y600.
Paper companies fell, with Nippon Paper sliding 4.4% to 1,891 yen. Mitsubishi Paper Mills decreased 3.2% to 90 yen as its target price was cut to 90 yen from 115 yen at SMBC Nikko Securities. Hokuetsu Kishu Paper Co. dropped 2.5% to 471 yen after the brokerage also lowered the stock's target price to 460 yen from 530 yen.
Japanese power plant operators underperformed, following a Nikkei report that safety checks for nuclear restarts will likely be delayed as a result of a delay in power operators submitting documents. Kansai Electric Power lost 3.1% to 1182 yen and Kyushu Electric Power fell 2.3% to 1304 yen.
In economic news, the Cabinet Office said today in Tokyo that core machine orders in Japan, an indicator of future capital spending, rose 0.6% in October from the previous month. The government upgraded its assessment to say orders are in a moderate rising trend, having last used this phrasing from February to May 2012.
In China, headline indices on the China share market suffered heavy losses, with shares in financial, energy, and resources counters were leading decliners, on speculation the government may cut growth targets at an economic policy meeting this week. Market pundits are expecting government will likely maintain its targets of 7.5% for growth and 3.5% for inflation next year to stabilize market sentiment. The Shanghai Composite fell 33.33 points to finish at 2204.17, while the CSI 300 Index dropped 40.56 points to close at 2412.76.
Financial sector fell the most in the SSE sectoral indices, washing out 2.1%, with insurance players were leading losses on profit taking. China Life Insurance Co. tumbled 3.9% to 15.66 yuan, reducing gains in the past month to 14%, while Ping An Insurance Group Co. retreated 3.4% to 41.73 yuan. Citic Securities Co., China's biggest listed brokerage, slid 3.4% to 15.68 yuan. Haitong Securities Co, the second largest, fell 3.8% to 11.43 yuan.
On the economic front, China's industrial output and investment growth cooled in November while retail sales unexpectedly picked up, presenting a mixed growth picture. The output from industrial enterprises with annual sales of more than 20 million yuan ($3.29 million) rose 10% from a year earlier, a fall from October's 10.3% year-on-year growth, according to data released by the National Bureau of Statistics on Tuesday. Also, the NBS said that fixed asset investment, a measure of government spending on infrastructure, expanded 19.9% year on year in the first 11 months of this year, compared with an increase of 20.1% for the first 10 months, indicating a slowdown in growth. Meanwhile, figures from the National Bureau of Statistics also showed that retail sales rose 13.7% year on year in November, accelerating from the 13.3% growth recorded in October.
National Bureau of Statistics said on Monday that Chinese inflation slowed to 3.0% in November, after two months of acceleration in consumer prices, well under the government's target for the year of 3.5%. On Sunday, the General Administration of Customs said exports accelerated 12.7% year-on-year in November while import growth weakened, fuelling the country's biggest trade surplus in nearly five years.
In Hong Kong, shares in the Hong Kong market declined for second consecutive day, dragging the benchmark Hang Seng index 405.95 points down from prior day to finish at 23338.24 on Wednesday, 11 December 2013, on mounting concerns about early tapering from the Fed.
Among the HK 50 blue chips, 3 rose and 46 fell, while remaining 1 stock closed steady. Ping An Insurance (Group) Co dropped 4% to HK$72.70 while Tencent Holdings rose 1.8% to HK$474.60, making them the top blue-chip loser and winner.
Shares of Chinese financial players listed in HK bourses declined the most on concerns about liberalization's impact on their bottom lines. ICBC (01398) retreated 2.7% to HK$5.43. CCB (00939), ABC (01288) and BOC (03988) all fell more than 2% to HK$6.06, HK$3.85, and HK$3.62. Ping An (02318) and China Life (02628) plunged 4% and 3.3% to HK$72.7 and HK$24.65.
Top-weighted Hang Seng component HSBC Holdings dropped 1.3% to HK$82.75, while fellow international lender Standard Chartered declined 2.2% to HK$164.10, with some reports linking the losses to the approval of the so-called Volcker rule in the U.S. which prohibits most proprietary trading by banks there. The Financial Times also cited concerns about possible cash-calls as weighing on Standard Chartered.
Resources players were weak, with Jiangxi Copper Co falling 2.5% to HK$14.08 and China Shenhua Energy Co erasing 3.7% to HK$24.55 after Credit Suisse cut both stocks to neutral.
In India, Indian benchmark indices trimmed intraday losses in second half of the day's trading session after a dull first half. The barometer index, the S&P BSE Sensex, was down 83.85 points or 0.39%, up 101.96 points from the day's low and off 44.53 points from the day's high. Except BSE FMCG index, all the other sectoral indices on BSE were in the red. The market sentiment hit adversely due to hawkish comments on inflation from Reserve Bank of India (RBI) Governor Dr. Raghuram Rajan.
Index heavyweight Reliance Industries (RIL) fell 0.17% at Rs 882.05. The scrip hit high of Rs 883.65 and low of Rs 872.20. Reliance Jio Infocomm, a subsidiary of Reliance Industries and Bharti Airtel on Tuesday, 10 December 2013, announced a comprehensive telecom infrastructure sharing arrangement under which they will share infrastructure created by both parties. This will include optic fibre network - inter and intra city, submarine cable networks, towers and internet broadband services and other such opportunities identified in the future, Reliance Jio Infocomm and Bharti Airtel said in a joint statement issued after trading hours on Tuesday, 10 December 2013. Bharti Airtel fell 1.89%. Shares of Bharti Airtel's telecom tower infrastructure arm Bharti Infratel rose 3.79%.
Oil & Natural Gas Corporation (ONGC) dropped 2%, with the stock extending Tuesday's losses. ONGC on Tuesday said the Gujarat High Court vide its order dated 30 November 2013 has decided that royalty on crude oil is to be paid on pre-discount price. The court has directed ONGC to make payment towards shortfall royalty for the period from April 2008 till this date, within a period of two months. ONGC said that the company is in the process of filing an appeal in the Supreme Court of India against the order of the Gujarat High Court and making the Union Government as party. The company's management has already directed Corporate Legal to engage best possible advocate for the case, ONGC said.
Hero MotoCorp dropped 1.46%. The company said during market hours that it has subscribed on 9 December 2013, to a total of 17.49 lakh equity shares of face value Rs 10 of HMC MM Auto at par, constituting around 60% shareholding in the joint venture (JV) company. HMC MM Auto has been incorporated as a joint venture between Hero MotoCorp and Magneti Marelli S.p.A. The purpose of this joint venture is to, amongst others, sell, distribute and market complete two wheeler fuel injection systems or components parts thereof, Hero MotoCorp said.
Elsewhere in the region, South Korea's KOSPI fell 0.78%. Taiwan's Taiex index dropped 0.1%. New Zealand's NZX50 index fell 0.6%. Singapore's Straits Times index fell 0.7%. Malaysia's KLSE Composite sank 0.1%. Indonesia's Jakarta Composite index lost 0.1%.
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