Asian shares fall to 4-week lows

2012-08-31 08:43

Tokyo - Asian shares fell to four-week lows on Friday as investors cooled expectations that US Federal Reserve Chair Ben Bernanke will offer any signal of a further monetary stimulus at a speech before fellow central bankers later in the day.

The annual Jackson Hole, Wyoming, gathering precedes the Fed's September 12-13 policy meeting, with market views mixed over whether the Fed would embark on an additional stimulus, and if so, whether it would be a forceful quantitative easing or something else.

Investors squared positions ahead of this week's biggest event to limit losses on recently oversold assets such as the Australian dollar and shares, which took a hit from slumping prices for iron ore, Australia's biggest export earner, due to concerns over demand weakening on slowing global growth.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1%, after European shares and the Dow Jones industrial average touched their lowest in four weeks on Thursday. The pan-Asia stock index was set for a monthly drop of about 1.1%, swinging into the red from July's 3.5% gain.

Japan's Nikkei stock average slipped 1.1% to a two-week low.

"Expectations were quite frothy but have become a bit more realistic," said CMC Markets chief market strategist Michael McCarthy.

Australian shares inched down 0.2% while the Aussie traded at $1.0286, holding off a five-week low of $1.0276 hit on Thursday. The euro firmed 0.1% to $1.2516 while the dollar edged down 0.2% to ¥78.47.

Sentiment remained underpinned by hopes central banks will take additional easing measures to support fragile global growth, but investors have been shifting focus to slackening economic activity in China and uncertainty over Europe's plan to tackle its debt crisis.

Data published on Friday showed Japan's industrial output unexpectedly fell in July while Japanese manufacturing activity contracted in August to the lowest level in 16 months.

"Markets will remain in a holding pattern until policy decisions are made in the United States and Europe, but even so, that won't solve the underlying structural problem which has deterred investors from fully returning to a 'risk on' mode," said Tetsuro Ii, CEO of Commons Asset Management, referring to the eurozone's protracted debt crisis.

"Worries over global demand deceleration are also heightening, with emerging economies becoming sluggish," he said.

Grabbing shrinking pies

The monthly US jobs report due on September 7 could shed more light on the Fed's next policy decision.

The German constitutional court ruling on the region's bailout funds due on September 12 could affect the implementation of the European Central Bank's planned bond-buying scheme aimed at driving down soaring borrowing costs in struggling countries such as Spain and Italy.

Eurozone finance ministers meet on September 14-15 while Greece awaits a review by international lenders of its austerity reforms due by early October, which could clear the way for a crucial bailout.

As markets mark time with persistent bias for more stimulus, assets will become even more expensive, with investors seen likely flocking to limited opportunities.

"As investors return from vacation and try to find worthwhile places to put money, they will be greeted with a familiar but worsening problem: little is cheap, with most assets even more expensive than they were before," said Kit Juckes, currency strategist at Societe Generale, citing the Australian dollar as an example.

"While easy money does little for growth, investors will continue to be squeezed out of 'safe' assets and drawn to corporate debt, equities and 'foreign stuff'. The Fed will continue to help asset prices and undermine the dollar."

Europe making noise

Even if Bernanke fails to give any clues on the possible policy decision next month, investors could still cling on to hopes the ECB will take concrete action to soothe eurozone bond market jitters.

Although the ECB may map out details of its bond-buying scheme as early as its September 6 policy meeting, it may not intervene before it is satisfied that the eurozone's permanent rescue fund is operational.

Spain, faced with snowballing regional debts which were threatening the sovereign financing and fuelling speculation the country may need to seek a bailout, has ruled out such an option until aid conditions are made clear.

As Europe struggles on its way to fiscal consolidation, a German newspaper reported that the European Commission plans to give the ECB oversight of all banks in the eurozone, a move that could help break the "vicious" link between the eurozone's debt crisis and struggling banks.

Oil steadied, with US crude and Brent both up 0.1% to $94.72 and $112.80 a barrel respectively.

Asian credit markets were subdued, with the spread on the iTraxx Asia ex-Japan investment-grade index wider by 1 basis point.

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