Asian Markets, Fundamentals

China Stocks Slump on Speculation for Increased Government Regulation, RBA Hikes Borrowing Costs

Asia Session Key Developments

• China’s Government May Act to Avoid Asset Bubble
• Reserve Bank of Australia Hikes 25bp to 3.50%

Stocks in Asia/Pacific traded lower on Tuesday, with the Hang Seng tumbling 1.76% on speculation the government may take additional steps to taper the rise in home prices, while the ASX tipped 0.20% lower as the Reserve Bank of Australia raised borrowing costs for the second time in November. The RBA hiked the benchmark interest rate by 25bp to 3.50% from 3.25% in October as the $1T economy skirts the global recession however, Governor Glenn Stevens held a dovish outlook for inflation as he expects the marked appreciation in the exchange rate to “constrain output in the tradeables sector and dampen price pressures” going forward. As policy makers hold a cautious outlook for the economy, investors see a risk for the RBA to keep rates on hold in December but nevertheless, long-term expectations for higher interest rates may continue to drive the Australian dollar higher as the $1T economy continues to benefit from the expansion in China.

Nikkei 225                          9,802.95

The Japanese stock market was closed in observance of the National Culture Holiday.

Hang Seng                        21,240.06

Shares in Hong Kong fell for the second day, with the benchmark equity index tumbling 380.13 points (1.76%) to end at 21,240.06 as 8 of the 9 components weakened on the day. Technology slumped 3.24% to lead the decline, followed by a 2.11% drop in oil & gas, while consumer goods advanced 0.79% to taper the drop in the Hang Seng. Shares of Sino Land pushed 4.1% lower on speculation the government will continue to act to stabilize the housing market, while Li & Fung advanced 0.79% as manufacturing in the U.S. rose at its fastest pace in three-years during the month of October. As a result, Foxxconn International Holdings, the largest contract-maker of cell phones in the world, added 0.57% following the ISM report, while Aluminum Corp of China slumped 1.63% on the back of lower commodity prices.

S&P/ASX 200 Index           4,531.50

The ASX slipped 8.90 points (0.20%) as the Reserve Bank of Australia raised the benchmark interest rate by 25bp to 2.50% and end the trading session at 4,531.50, led by a 0.68% drop in telecommunications. Shares of National Australia Bank slipped 1.76% as the central bank hiked borrowing costs for the second time this year, with Westpac Banking Corp tipping 0.63% lower, while Newcrest Mining advanced 3.92% following the rise in gold prices. Moreover, Macmahon Holdings surged 7.48% after the firm announced it will renew its agreement with Leighton Holdings, the biggest engineering and construction company in the region, while Origin Energy shed 1.07% after RBS lowered its rating on the stock to “hold” from “buy.”

Notable Asian Session Event Risk / Economic Releases