Financial firms batter Asian stocks

ASIAN stocks dropped for the first time in three days yesterday as declines in financial companies overcame gains in producers of raw materials.

Kookmin Bank, South Korea's biggest bank, dropped to a one-week low after profit fell and St George Bank Ltd, Australia's fifth-largest, tumbled the most in three weeks as bad debts and funding costs rose. BHP Billiton Ltd, the world's biggest miner, advanced after copper and gold prices gained, Bloomberg News said.

"Results so far are not showing that things are turning around, especially in the financials," said Leslie Phang, Singapore-based head of private client investments at Schroders Plc, which manages US$275 billion. "Earnings estimates in Asia haven't been lowered enough to take into account the macroeconomic headwinds."

More writedowns

The MSCI Asia Pacific excluding Japan Index shed 0.2% to 498.17 as of 6:33pm in Hong Kong, following a two-day, 2-percent advance.

Financial shares fell 1.1%, the biggest drag among the regional benchmark's 10 industry groups, and commodity producers gained 1%.

Japan's markets were closed for a holiday yesterday. Australia's S&P/ASX 200 Index lost 0.5%. About half of Asia's benchmarks retreated.

China Petroleum & Chemical Corp, the nation's largest refiner, slumped after crude oil prices surpassed a record US$120 a barrel. South Korea's Posco rose after it agreed to buy a stake in Sandfire Resources NL, an Australian minerals explorer.

Kookmin lost 3.2% to 69,200 won (US$69), declining for the first time since April 24. The company said first-quarter net income fell 47%, prompting Morgan Stanley and UBS AG to cut their ratings on the stock.

"While the thinking prevalent a month ago that the worst is over for the financial markets is no longer there, you'll still see some more writedowns by banks," said David Ng, who helps manage about US$1 billion at Hwang-DBS Asset Management in Kuala Lumpur. "We don't doubt there will still be credit weaknesses" in some banks, he said.

St George dropped 2.7% to A$26.98 (US$25.72), the biggest retreat since April 18, after saying net income declined 10%. Chief Executive Officer Paul Fegan cut his forecast for earnings per share growth to 8% to 10% for the full year, from 10% estimated in February.

Retail sales

The Reserve Bank of Australia yesterday left interest rates unchanged at a 12-year high of 7.25% after reports in the past month showed consumer and business confidence slumped, retail sales slowed and home building fell.

Malayan Banking Bhd dropped 3.8% to 7.70 ringgit (US$2.45), its lowest close since January 2004, after Citigroup Inc, UBS and Macquarie Group Ltd cut their share-price forecasts for Malaysia's largest bank.

The company said on Monday it will pay as much as 60.3 billion rupees (US$916 million) for a 20-percent stake in Pakistan's MCB Bank Ltd.

BHP Billiton added 0.7% to A$44.42, capping a four-day, 5.1-percent gain.

Rio Tinto Group rose 2.1% to A$141.93. Newcrest Mining Ltd added 2.5% to A$29. >>Full Story...

Equities finish slightly lower on profit taking and IPO concerns

SHARES in Shanghai closed slightly lower yesterday, led by banks and airlines, because of profit taking and concerns over new domestic initial public offerings which will siphon capital.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares shed 0.73% to 3,733.50 after three straight days of gains. Turnover rose to 148.30 billion yuan (US$21.14 billion) from 147.57 billion yuan in the previous session. Losers outnumbered gainers 496 to 289 while 12 stocks were unchanged.

"It's natural for a correction after the strong rebound over the previous days, and the market will turn upward in the long term," said Wan Bing, an analyst at GF Securities.

Wang Xingjun, an analyst at Donghai Securities, is also moderately optimistic about the market as "it takes time for investors to regain confidence."

Bellwether stocks, including China Mobile, have applied to issue IPOs in the domestic market, which is expected to put pressure on capital supply, according to media reports yesterday.

Banks and insurance firms were among the decliners yesterday. Bank of Communications lost 3.16% to 10.41 yuan while China Construction Bank shed 2.77% to 8.06 yuan. Industrial and Commercial Bank of China, the country's largest commercial bank, tumbled 2.55% to 6.49 yuan and China Merchants Bank fell 2.75% to 33.99 yuan.

China Life Insurance fell 2.05% to 36.40 yuan and Ping An Insurance (Group) Co of China lost 1.57% to 67.53 yuan.

But GF's Wan is confident that over the long term, banks have the potential to climb as they stand top benefit from the appreciation of the yuan.

China's top three airlines tumbled as crude oil hit a record high of US$120 a barrel.

Air China lost 5.21% to 15.46 yuan while China Eastern Airlines shed 4.16% to 11.30 yuan. China Southern Airlines declined 5.32% to close at 13.18 yuan.

But brokers gained, with Citic Securities, the nation's largest brokerage, adding 1.72% to 40.82 yuan. The stock surged 36% between April 23 and yesterday. Northeast Securities Co rose 5.44% to 36.25 yuan. >>Full Story...

Oil and coal shares boost HK key index

HONG Kong's benchmark stock index rose to its highest in more than three months as gains by oil and coal producers outweighed losses by refiners and airlines.

Cnooc Ltd, China's largest offshore oil driller, advanced after crude surpassed a record US$120 a barrel. China Petroleum & Chemical Corp, the country's largest refiner, and Cathay Pacific Airways Ltd fell on concern higher fuel costs will erode profit.

"Oil prices are going to hold up between US$100 and US$120 a barrel," said Tat Auyeung, a fund manager at Apex Capital Management in Hong Kong, which oversees almost US$800 million. "High oil prices are not good for airlines."

The Hang Seng Index added 78.18, or 0.3%, to 26,262.13 at the close in Hong Kong, the highest since January 14. The gauge fell as much as 0.4% earlier. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese mainland companies, gained 0.2% to 14,651.29.

CNOOC, China's third-largest oil company, advanced 3%, to HK$13.90 (US$1.78). The price estimate was raised 10% to HK$16.50 at Goldman Sachs Group Inc.

Citic Resources Holdings Ltd, a unit of China's fourth-largest oil producer, jumped 6.6%, to HK$3.90, its biggest gain since April 22.

China Petroleum, also known as Sinopec, dropped 2.2% to HK$8.52 on speculation profit will be squeezed by the rising cost of crude, Bloomberg News said.

Cathay Pacific, Hong Kong's largest carrier, declined 1.3% to HK$16.84 on concerns higher crude prices will increase its fuel costs. >>Full Story...

Listed firms told to tighten equity options

LISTED firms have been told to set stricter thresholds over equity options owned by senior management as part of moves to prevent illegal benefit transfers, the China Securities Regulatory Commission has reportedly said.

The exertion price of stock options can't be set at less than 50 percent of the average share price of a listed company in the 20 sessions before the incentive program is unveiled, the Shanghai Securities News reported today, citing notices delivered to listed firms by the stock regulator.

Controlling shareholders who receive shares as incentive can't dispose of them within 36 months. Also, big shareholders can't directly offer stock incentives to senior management while supervisors of a public firm are not allowed to be included in the incentive program.

Also, the program can only be carried out when the firm performed no worse compared to its historical record and the shares reserved for the program can't be more than 10 percent of total equity.

"These are all very sensitive points in giving away shares. The terms in the notice are straight and clear, making the regulation easier," said Zhang Qi, an analyst with Haitong Securities Co.

The CSRC has beefed up efforts to improve discipline over listed firms and securities companies.

Last month, China passed in principle two draft rules on the supervision and risk management of securities companies. >>Full Story...

China tightens rules on listed companies' management incentives

China's securities regulator has issued rules on listed companies' incentive plans in an effort to prevent management officials from making improper gains arising from favorable timing.

Companies should not introduce share option schemes shortly before announcing major decisions, according to two notices issued by the China Securities Regulatory Commission (CSRC).

A listed company should not carry out major actions such as new stock issues, asset injections or bond offerings within 30 days after having announced an incentive plan and obtained shareholder approval, CSRC said.

Likewise, companies shouldn't introduce an incentive plan during and or within a 30-day period after the announcement and completion of major decisions, it said.

The regulation also prohibits shareholders from directly awarding or transferring shares to the object of the incentive plan (that is, the management officials), as some companies have done to avoid regulatory scrutiny.

Controlling and major shareholders who hold 5 percent or more of a company's shares may not be offered incentive plans, except with the approval of shareholders, the memorandum said.

Media reports said that the CSRC's action was taken in response to several companies' recent attempts to introduce incentive plans immediately before disclosing positive information.

"This action would benefit both listed companies and their shareholders, as it improves regulation of the market," said Li Feng, a Galaxy Securities analyst. >>Full Story...

China Merchants Bank to take stake in insurance company

China Merchants Bank (CMB) said on Monday that it would buy a stake in CIGNA & CMC Life Insurance Co. to expand its insurance business.

CMB, the country's largest credit card issuer, said that it had signed an agreement with Shenzhen-based Din Zun consulting company-- which is also under China Merchants Group -- to take over all 50 percent of the CIGNA & CMC shares that it held for 142 million yuan (about 20 million U.S. dollars).

The acquisition must be approved by the China Banking Regulatory Commission and the China Insurance Regulatory Commission.

Founded in summer 2003 with a registered capital of 320 million yuan, CIGNA & CMC is a Sino-American joint venture that offers life, casualty and health insurance.

U.S.-based CIGNA Company holds the other 50 percent of the shares.

CMB has been an agent for CIGNA & CMC's insurance policies and earned 66.39 million yuan in service fees from the company during the first 11 months of last year, a 3.5-fold increase from 2006.

Acquiring the stake in CIGNA & CMC would improve the bank's revenue structure and sharpen its competitive edge, according to CMB. >>Full Story...

Nine Dragons Rises on Plan to Buy Vietnamese Paper Manufacturer

Nine Dragons Paper (Holdings) Ltd., China's biggest maker of containerboard used for packaging, rose to the highest in almost two months in Hong Kong trading after announcing plans to buy a paper maker in Viet Nam.

The shares gained 12% to HK$10.18 as of 12:24 p.m., the biggest advance in the MSCI Asia Pacific Index today. Nine Dragons will buy 60% of Cheng Yang, a maker of industrial paper products, for $22.8 million, the Hong Kong-based company said in a statement to the local stock exchange yesterday.

Nine Dragons aims to increase its production and export bases outside of China to gain market share. The company is raising prices after reporting a smaller-than-expected gain in fiscal first-half net income in March because of increased costs of imported recycled paper, its main raw material.

Cheng Yang's products are mainly sold in Vietnam, Laos and Cambodia. Nine Dragons will transfer a paper-making machine to Cheng Yang to increase the company's annual production capacity to 500,000 tons from 100,000 tons by the end of 2009, the statement said. The machine was originally earmarked for a Nine Dragons factory in mainland China, it said.

Cheng Yang may invest $200 million to expand production, the statement said.

Nine Dragons is controlled by Zhang Yin, one of China's richest people. The stock has lost 49% this year, compared with a 5.9% drop in Hong Kong's benchmark Hang Seng Index. (Bloomberg) >>Full Story...

Hong Kong-listed Citic Resources surges as oil prices trade near record high

Hong Kong-listed Citic Resources Holdings Ltd., a unit of one of the mainland's top oil producers, surged in early trade Tuesday as oil prices traded near record highs.

Oil futures for June delivery traded close to $120 a barrel on Tuesday in Asia after reaching an intraday peak of $120.20 on Monday.

"Citic Resources has oilfields abroad and higher oil prices will help the company improve its earnings," said Castor Pang, a strategist at Sun Hung Kai Financial. "As long as oil prices are higher, oil stocks will continue to post gains."

Last year, Citic Resources agreed to buy a Kazakhstan oil field, replacing CNPC (Hong Kong) Ltd. as the fourth-largest listed Chinese oil producer in terms of output. The biggest producers are PetroChina Co., China Petroleum Corp. and CNOOC Ltd.

The company also owns an oilfield in Indonesia.

"We believe Citic Resources is a major beneficiary of rising oil prices given its exposure to upstream but not to the Chinese refining sector," Goldman Sachs wrote in a note to clients.

Goldman Sachs has a "buy" recommendation on Citic Resources and a target price of HK$5.25 over a 12-month period.

At 10.57 a.m. (0257 GMT), shares of Citic Resources were up 6.3 percent at HK$3.89. The stock rose as much as HK$3.92 earlier today.

Another oil producer, CNOOC Ltd., gained 2.96 percent to HK$13.90. (Thomson Financial) >>Full Story...