Asian shares hit by Egypt turmoil

SINGAPORE (Dow Jones)–Asian stock markets were hit on Monday by the political turmoil in Egypt.

Japan’s Nikkei Stock Average was down 1.6%, Australia’s S&P/ASX 200 was down 1.1%, South Korea’s Kospi Composite was 1.6% lower and New Zealand’s NZX-50 shed 0.7%.

Dow Jones Industrial Average futures were 54 points lower in screen trade.

Investor sentiment was battered after the DJIA dropped 1.4% on Friday, its largest one-day drop since Nov. 16, 2010 due to the continued political turmoil in Egypt.

Six days of nationwide protest against President Hosni Mubarak’s three-decade rule have shaken Egypt and left at least 125 people dead as the veteran leader clings to power.

“Risk is back on the table and people are acting accordingly,” said Hamilton Hindin Greene broker James Smalley in Christchurch, New Zealand.

Still, there was some skepticism over whether Egypt’s issues will have long-term effects on oil prices and global economic growth. “While there will be days like today where the markets worry about sideshows like Egypt, we continue to believe the right strategy is focusing on the accelerating global economic recovery that won’t be derailed by a few dictators being removed in the Middle East,” said Sydney-based Southern Cross Equities Director Charlie Aitken. He noted that the impact of the Middle East strife depends on the extent and duration of any oil price spike.

Nymex crude oil futures were up 87 cents at $80.21 per barrel on Globex, after rising $3.70, or 4.3%, on Friday.

Traders are watching if the unrest there spreads to surrounding oil-producing nations, said Nihon Unicom analyst Hiroyuki Kikukawa. Thus far there have been no supply disruptions; “The protests have no effect on the shipping traffic,” Abdul Ghani Mohamed Mahmoud, a spokesman for the Suez Canal Authority, said Sunday.

In Sydney, the increased risk aversion hit mining stocks with BHP Billiton down 1.6% and Rio Tinto down 2.2% despite Friday’s 1.0% rise in London Metals Exchange copper prices.

Financials, industrials, consumer discretionary and healthcare sectors were also under pressure, with major banks down 0.7%-1.1%, Leighton down 1.8%, and CSL down 1.6%. Oil and gold stocks are outperforming, thanks to stronger oil and gold prices; Woodside Petroleum was down 0.6% and Newcrest Mining was up 0.8%.

Southern Cross Media was down 6.9% after it said it made a friendly offer of up to A$741.3 million to takeover rival broadcaster Austereo Group.

Southern Cross is offering an all-cash alternative of A$2.00 per Austereo share plus a 5 Australian cent dividend announced by Austereo Monday. It will also pay Austereo shareholders an extra 10 cents a share, but only if its offer reaches the 90% compulsory acquisition threshold. Austereo was up 8.5% at A$2.05.

Wesfarmers was up 0.7% after it reported second-quarter comparable sales growth of 6.6% on-year in its Coles food and liquor division. That beat JP Morgan’s forecast of 5.6% growth and Goldman Sachs’s forecast of 5.5%. “Overall a good result,” said Goldman Sachs in a research note. “The Coles food and liquor turnaround continues to show good momentum, in particular with regard to the sales numbers it has reported in comparison to the overall market.”

Japanese exporters’ shares were hit by the yen’s strength and concerns about escalating tensions in Egypt. “If the unrest in Egypt drags on, there is a possibility that falls in global equities will continue,” said Okasan Securities strategist Hideyuki Ishiguro.

Thirty of the 33 Topix subindexes were lower. Among exporters, Tokyo Electron shed 2.6% and Sony lost 2.6%. Fujitsu dropped 8.1% and Konica Minolta fell 6.8% after both cut their full-year profit forecasts. Inpex was up 1.5%, helped by the sharp spike in crude prices.

The political turmoil in Egypt offered Korean investors an excuse to take profits, said Shinhan Investment Corp analyst Lee Sun-yeop. However, he said the Egyptian crisis was unlikely to have a significant impact; “its impact on the stock market is fundamentally different to the impact from the European debt problem and is expected to be short lived.”

Most blue chip stocks were lower, with Samsung Electronics down 1.3%, Hyundai Motor down 4.0 and KB Financial Group off 1.9%.

New Zealand shares drifted lower on the increased risk aversion fueled by the Egyptian headlines but trade was extremely thin because of a holiday in the city of Auckland.

Fletcher Building was down 1.1% after the company increased its offer for Australia’s Crane Group, a move which Hamilton Hindin Greene’s Smalley said was mostly expected. Market heavyweight Telecom was down 0.4%.

In foreign exchange markets, the euro was pressured lower against the U.S. dollar and the Japanese yen, due to the political crisis in Egypt. The Australian and New Zealand dollars were also weaker against the greenback.

“There is massive risk aversion. It’s really all about whether it is going to spread further,” said Auckland-based HiFX Senior Trader Stuart Ive. He said there could be some consolidation in the Asian session given the euro’s sharp moves on Friday. “I wouldn’t be surprised to see it (the euro) bounce but of course this is going to be hugely dependent on what information is coming out of Egypt.”

The euro was at $1.3589 against the dollar, from $1.3612 in late New York trade on Friday, and at Y111.60 against the yen, from Y111.70. The dollar was at Y82.11, from Y82.10.

Lead Japanese government bond futures were up 0.16 at 140.08 points on increased demand for safe haven assets. The benchmark cash 10-year JGB yield was down 1.5 basis points at 1.20%.

Spot gold was at $1,341.90 per troy ounce, up $3.50 from its New York settlement on Friday, as it also benefited from safe-haven demand due to the troubles in Egypt.

“Markets don’t like instability in an already tense region,” said Carlos Sanchez, associate director of research with CPM Group in New York, who noted concerns about emerging market portfolios. “When you have an unstable government, it doesn’t bode well for that region’s equities.” WSJ