Asia drops as Japan falls into recession

Asian stocks fell toward the lowest level in six weeks yesterday after Europe’s worst terror attack in a decade and as data showed Japan’s economy fell back into a recession.

The MSCI Asia Pacific Index declined 1.1% to 130.77 at 4:54 p.m. in Hong Kong, as every industry group retreated. Japan’s Topix index lost 0.9% as data showed weakness in Japanese business investment and shrinking inventories drove the economy’s contraction. Investors are assessing the impact of the Paris attacks on Europe’s economy at a time when global output is already weakening and an equity rally is showing signs of stagnating.

“There is no doubt that the attacks in Paris will contribute to short-term investor nervousness,” said Shane Oliver, Sydney-based strategist at AMP Capital Investors Ltd, which oversees about $110 billion. Markets in the past decade have rebounded from terrorist attacks after an initial negative impact on stock markets, as it becomes clear there will not be a major economic impact, he said. “I think history will repeat itself. It will just be a short selloff.”

The history of terror incidents around the world over the last 15 years shows market reactions are often sharp and, increasingly, short-lived. While the Standard & Poor’s 500 Index s lumped 12% in five days after the 9/11 attacks in 2001, the benchmark equity gauge recovered losses within a month.

Japan’s economy contracted in the third quarter on sluggish business investment. Gross domestic product declined an annualised 0.8% in the three months ended Sept 30, following a revised 0.7 drop in the second quarter, the Cabinet Office said yesterday in Tokyo. Economists had estimated a 0.2% decline for the third quarter.

South Korea’s Kospi index retreated 1.5% and Hong Kong’s Hang Seng Index dropped 1.7%. Australia’s S&P/ASX 200 Index slid 0.9% and New Zealand’s NZX 50 Index fell 0.5%. Taiwan’s Taiex Index slid 0.4%.

The Shanghai Composite Index climbed 0.7%, led by technology shares, on speculated state buying after officials moved to tighten curbs on margin borrowing. Suspected intervention by China’s central bank also helped the yuan jump in offshore trading to reverse earlier losses. The Hang Seng China Enterprises Index retreated 2% in Hong Kong.

The Shanghai and Shenzhen stock exchanges cut by half the amount of borrowed money investors can use to buy shares, as authorities sought to prevent a repeat of the excesses that led a $5 trillion rout. Government-backed funds may have spent at least 1.5 trillion yuan ($235 billion) in the third quarter to prop up equities, according to Bank of America Corp.