Asia Stocks Outside Japan Drop on Stimulus Cut Concern

Asian stocks outside Japan fell as stronger growth in U.S. service industries fueled speculation the Federal Reserve will soon be able to reduce economic stimulus.

HSBC Holdings Plc (5) slumped 5 percent in Hong Kong after earnings at Europe's biggest bank missed analysts' estimates. Sony Corp. (6758) sank 4.6 percent in Tokyo after its board rejected billionaire Daniel Loeb's call to sell part of its entertainment business. Fonterra Shareholders Fund climbed 1.3 percent in New Zealand, recouping some of yesterday's record decline after Russia and China halted imports of milk powder from Fonterra Cooperative Group Ltd., the world's largest dairy exporter.

The MSCI Asia Pacific excluding Japan Index sank 0.5 percent to 440.95 as of 4:34 p.m. in Hong Kong, with more than two stocks falling for every one that rose.

"The ramp-up in the U.S. economy is not only gaining momentum, but is accelerating," Evan Lucas, a Melbourne-based market strategist at IG Markets Ltd., a provider of trading services for equities, currencies and commodities, said by e-mail. "This is increasing the hawkish view of the Fed. This is why the September taper talk will continue. The blueprint for monetary stimulus tapering will be laid out in September with the first wind-back in October."

Topix Rebounds

Japan's Topix index gained 0.8 percent, reversing earlier losses of as much as 1.3 percent, after Reuters reported the pension fund for Japan's civil servants is considering investing more of its $80 billion in stocks and less in domestic government bonds. It quoted people it said were familiar with the matter.

The Japanese pension-fund report is "a sentiment boost," said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading Ltd. "This pension fund may turn around and do what the Government Pension Investment Fund did. All these things keep the trend on track and are positive" for equities.

The GPIF, the world's largest manager of retirement savings, said on June 7 that it's cutting local bond holdings to buy more stocks and foreign securities.

Australia's S&P/ASX 200 Index (AS51) fell 0.1 percent, maintaining its losses after the Reserve Bank of Australia cut its benchmark interest rate to a record-low 2.5 percent from 2.75 percent. Growth in Australia's economy has been weakening over the past year as China slows, curbing demand for natural resources.

Hong Kong

South Korea's Kospi index dropped 0.5 percent and New Zealand's NZX 50 Index declined 0.3 percent. Singapore's Straits Times Index slid 0.8 percent and Taiwan's Taiex index fell 1.2 percent. Hong Kong's Hang Seng Index declined 1.3 percent and China's Shanghai Composite added 0.5 percent.

Asian shares last week capped a sixth week of gains and the S&P 500 Index climbed above 1,700 for the first time as central banks vowed to maintain stimulus and data showed U.S. economic growth beat projections in the second quarter.

Futures on the Standard & Poor's 500 Index (SPX) slipped less than 0.1 percent today after the U.S. benchmark gauge fell yesterday from record highs.

The Institute for Supply Management's non-manufacturing index for the U.S. rose to 56 in July, beating the median estimate of 53.1 and June's 52.2 reading.

Federal Reserve Bank of Dallas President Richard Fisher said the central bank is closer to slowing bond purchases that have stoked global equity gains. The Fed's Fisher, one of the most vocal critics of quantitative easing, warned investors not to rely on the central bank's $85 billion in monthly bond purchases.

Fisher Speech

"Financial markets may have become too accustomed to what some have depicted as a Fed put," or the idea that the central bank will loosen credit after a market decline, Fisher said yesterday in a speech in Portland, Oregon. "Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets" and can lead to "serious mis-allocation of capital."

The MSCI Asia Pacific Index, which includes Japan, rose 0.1 percent to 135.35 today. The measure yesterday traded at 13.2 times average estimated earnings compared with 15.5 for the S&P 500 index and 13.9 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Of the 429 members of the Asia-Pacific gauge that have posted earnings since July 1, 51 percent have exceeded analysts' estimates for profit and 49 percent for sales.

HSBC Earnings

HSBC lost 5 percent to HK$85.10 in Hong Kong. First-half net income rose 22 percent to $10.28 billion, less than the $10.57 billion estimate of five analysts surveyed by Bloomberg. Chief Executive Officer Stuart Gulliver said the lender's fast-growing emerging markets are slowing.

Sony retreated 4.6 percent to 2,039 yen in Tokyo. Daniel Loeb's Third Point LLC has built a 6.9 percent stake in Sony and pushed the board to sell as much as 20 percent of its entertainment assets in an initial public offering. The board's decision to reject this was unanimous.

Japan Exchange Group Inc. (8697) retreated 2.7 percent to 9,650 yen as Credit Suisse Group AG advised selling shares of the stock market operator. The analysts said there is "still a relatively large scope for a correction" in the share price, citing weaker trading volumes for equities and derivatives.

Fonterra advanced 1.3 percent to NZ$6.95. China stopped imports of whey protein and a dairy base powder from Fonterra used in infant formula and Russia temporarily suspended purchases of all New Zealand dairy products, New Zealand's Trade Minister Tim Groser said yesterday. The stock yesterday fell the most on record.