Asian Shares Lower on Commodities Rout, Lackluster Earnings

By Chao Deng 

Asia shares were mostly down Friday, tracking losses on Wall Street overnight, although a rebound in China has been steadying.

The Nikkei Stock Average was down 0.4%, South Korea's Kospi fell 0.7% and Australia's S&P ASX 200 was flat.

Overnight, U.S. stocks slid in the wake of disappointing earnings and outlooks from 3M Co. and Caterpillar Inc.

"Earnings growth is more of a problem for the U.S. than Japan, but the run up in Japanese shares this year (more than 18.5% year-to-date for the Nikkei) makes it clear that projected earnings on the Japan side may not be able to sustain much higher stock prices," said Barclays chief Japan equity strategist Hajime Kitano.

"Given annual earnings growth in the low- to midteens, the Nikkei may very well trade largely flat for the remainder of the year," he added.

The Japanese yen was last at Yen123.85 against the U.S. dollar, from Yen123.91 late yesterday in New York.

Gold made a slightly gain overnight, after 10 straight days of losses, as a slightly weaker dollar lured buyers back into the market. The most actively traded contract, for August delivery rose $2.60, or 0.2%, to settle at $1,094.10 a troy ounce on the Comex division of the New York Mercantile Exchange Gold had fallen to a five-year low on Wednesday.

Oil prices sank into a bear market Thursday in the U.S. as a global glut of crude shows little sign of abating. Brent crude futures are up 31 cents at $55.58 a barrel early in Asia, after settling at to $55.27, its lowest level since April 2.

In China, the Shanghai Composite rose for the sixth consecutive session Thursday as Beijing-backed funds and buying by large shareholders appeared to support the market's rebound, according to analysts.

The Shanghai Composite, still down about a fifth from its June highs, would still need to rise roughly 9% before reaching 4500. Brokerages are expected to continue buying the market as long as it stays below that level.

David Welch, managing director at Reorient Financial, says that local analysts estimate state-backed China Securities Financial Corp. has spent roughly one trillion yuan ($160.9 billion) out of an estimated two trillion credit line, to support the market.

China Securities Regulatory Commission said during the stock rout earlier this month that the central bank would inject capital into state-owned CSF Corp. to expand brokerages' business of financing investors' stock purchases. The securities commission said later that CSF Corp. was extending a 260 billion yuan ($42 billion) credit line to 21 securities firms to buy stocks.

Authorities haven't disclosed the total amount that CSF is spending to buy equities.

One bright spot is that major shareholders appear to be buy rather than just holding on to shares. Earlier this month, regulators had blocked shareholders and company executives with stakes of more than 5% from selling shares for six months.

But worries remain. The government has said it is moving to clamp down on gray-market margin financing, which could push down the market. Analysts have estimated that hundreds of billions of yuan from unofficial margin lenders helped fuel that yearlong rally to mid-June.

Official margin lending provided by Chinese brokerages stood at 1.5 trillion yuan as of yesterday, down 36% from a record 2.3 trillion on June 18, according to Wind.

Mr. Welch added that if the index retraces 50% of its selloff, it would rise to roughly 4276 by the end of the month.

Write to Chao Deng at [e-mail]

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