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Worries about the outlook for China’s growth rate set a cautious tone on Asian equities markets this week as Beijing’s determination to cool inflation with tighter monetary policy stifled sentiment.
The Shanghai Composite registered its worst close since January at 2,705.18 on Thursday after data on Wednesday showed China’s purchasing managers’ index had dipped to 52 in May from 52.9 in April as the government expanded tightening measures to tame inflation and the property market. That followed HSBC’s manufacturing PMI figures last week, the earliest indicator of China’s industrial activity, which sparked fears with the lowest reading since July 2010.
Hong Kong’s Hang Seng fell 0.7 per cent over the week to 22,949.56. Stubborn worries about the impact of tighter monetary policy on earnings in the banking sector meant it missed out on the Friday recovery seen on the mainland, losing 1.3 per cent. China Construction Bank shed 1.9 per cent to HK$7.06 on Friday, registering a weekly loss of 1.8 per cent. China Overseas Land & Investment fell 1.7 per cent to HK$15.44, a loss of 0.2 per cent for the week.
In Japan, political turmoil added to the region’s sense of economic uncertainty. Although Naoto Kan survived a no-confidence vote to remain as prime minister, his victory came only after he had signalled willingness to resign after making progress on response to the March earthquake and tsunami and nuclear crisis.
The growth concerns, also sparked by weak US data, kept Tokyo’s exporters under pressure. Toyota Motor dropped 1.2 per cent to Y3,230 by the Friday close after its US car sales plunged 28 per cent year-on-year in May, following production shutdowns after the March disaster. The fall took the stock’s weekly loss to 3 per cent. Honda Motor, which gets more than 40 per cent of its sales from North America, shed 0.8 per cent on Friday to Y3,020.
Wider export stocks also fell. Sony, the electronics group, shed 0.6 per cent to Y2,129, hit by news of a fresh hacker attack into its movie unit website.
Meanwhile, Tokyo Electric Power closed on Friday at a record low of Y286.
European markets endured their fifth consecutive week of losses after a profit warning from Nokia and as the termination of Germany’s nuclear power industry was announced, hitting plant operators Eon and RWE.
Underpinning the week’s negative tone were concerns over the outlook for the global economy following a string of soft US economic reports – culminating in Friday’s much weaker than forecast US non-farm payrolls report for May.
Over the week, the FTSE Eurofirst 300 fell 2 per cent to 1,111.51, its biggest weekly fall since March, and its longest run of weekly losses since 2008. It finished off its lows on Friday, however, as news began to emerge of a fresh bail-out deal for Greece.
Nokia’s warning was the latest sign that Europe’s biggest technology company is struggling in the face of competition from the likes of Apple’s iPhone and rivals such as Samsung and HTC, which use Google’s Android operating system. The company said second-quarter sales and operating margins would be “substantially” below its previous forecasts as volumes and prices fell. Nokia ended the week down 22.1 per cent at €4.48, having fallen 17.5 per cent on Tuesday following the warning.
Losses for German utilities Eon and RWE followed the government’s decision to abandon its nuclear programme, setting the deadline for closing all plants by 2022.
Germany’s decision was in part a response to the meltdown at Japan’s Fukushima plant, caused by March’s earthquake and tsunami, which led to increasing safety concerns about the nuclear industry around the world.
The industry had received a brief boost last week on reports the government would scrap a tax on spent nuclear fuel rods, but the country’s environment minister said the levy would remain. RWE fell 6.9 per cent over the week to €38.19, while Eon lost 5.8 per cent to €18.84.
Shares in alternative energy companies were lifted as Germany renewed its commitment to lift the share of energy produced by greener sources. Among the companies that build wind turbines, Denmark’s Vestas Wind Systems gained 4.3 per cent to DKr153.30, while Germany’s Siemens added 1.1 per cent to €91.
Banks, however, were among the worst performing stocks on the FTSE Eurofirst 300 as investors were broadly averse to risk following the run of economic data that appeared to indicate slowing global growth.
Italy’s UBI Banca shed 4.8 per cent to €5.12 and domestic rival Banca Monte dei Paschi di Siena fell 7.6 per cent to €0.79. France’s Natixis lost 6.2 per cent to €3.62.
Cyclical groups reacted sharply to a US job market report that missed already modest expectations.
Technology, down 1.4 per cent, contributed the most to a 1 per cent decline in the S&P 500 index to 1,300.16, its lowest in nearly two and a half months.
Monster Worldwide, the job postings website, dropped 5.7 per cent to $13.58, its lowest since October 2010.
Semiconductor groups continued their decline, as analysts predicted a fall in demand this year. The Philadelphia “Semis” index fell 1.9 per cent, for a 3.3 per cent drop on the week.
The Nasdaq Composite was the biggest loser, falling 1.5 per cent to 2,732.78.
Jabil Circuit, manufacturer of electronics equipment, fell 4 per cent to $19.95, and MEMC Electronic Materials, a maker of solar panel chips, ended 3.6 per cent lower at $9.64.
Analysts at Deutsche Bank, citing declining demand, said they favoured chipmaking groups “that have already taken inventory adjustment”, including Intel, whose shares fell 1.6 per cent to $21.73.
Materials and industrials fell 1.3 per cent. Alcoa, the aluminium producer, sank 1.9 per cent to $15.91, and equipment maker Caterpillar dropped 1.9 per cent to $100.22.
Their losses led the Dow Jones Industrial Average to slip 0.8 per cent to 12,151.26.
Especially hard hit were groups tied to raw materials, even as the dollar slipped. Chemicals group Du Pont shed 1.7 per cent to $50.29, a four-month low. Eastman Chemical fell 2.3 per cent to $100.68.
The US economy produced just 54,000 jobs in May, well below the 165,000 jobs expected by a broad survey of economists, though many had already lowered their expectations to less than 100,000 following poor private figures earlier this week.
The S&P was still less than 5 per cent off its high for the year, falling 2.3 per cent on the week. The Dow and the Nasdaq matched that 2.3 per cent decline over the shortened week.
Shares in Goldman Sachs bounced back 0.7 per cent to $135.33. It fell more than 1 per cent on Thursday on news that the top New York City prosecutor was seeking documents related to its pre-crisis activities.
Retailers were broadly weaker this week after May sales were reported to be below expectations. Target fell 4 per cent to $47.40 and Gap fell 6.7 per cent to $17.92.
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