Asian stocks fell by half a percent on Friday, succumbing to a broad bout of profit-taking, as concern about rising inflation outweighed robust earnings.
The Nikkei average (.N225) fell by nearly 1 percent, weighed down by financial stocks, as investors worried about higher borrowing costs after Standard & Poor’s cut Japan’s credit rating by a notch for the first time since 2002.
While the MSCI index of Asian stocks outside Japan (.MIAPJ00000PUS) was poised to eke out meager gains for the week, thanks to a mild recovery in risk-appetite, Asian stocks have underperformed the MSCI world index (.MIWD00000PUS), which has risen by 2.5 percent since the beginning of the year.
A combination of worries of frothy valuations and a steady drip of positive data out of Europe and the United States have encouraged investors to take profits in some Asian markets, particularly in those that are seen as slow in tackling inflation.
Barclays strategists said Asian authorities are not countering price pressures with sufficient tightening and inflation risks would continue to have a bearing on these markets.
Malaysia held off from raising interest rates on Thursday while the Philippines said this week the U.S. Federal Reserve’s dovish stance vindicated its low rates policy.
But some other central banks in the region are stepping on the policy brakes after heavy offshore selling.
India raised interest rates by a quarter point this week, its seventh such increase in less than a year, and Indonesia signaled an aggressive approach to tackling inflation.
Both markets have borne the brunt of the recent selloff.
India’s stock index (.BSESN) is poised to register its worst monthly performance since October 2008 and 10-year Indonesian bond yields have risen by the most since early 2009.
Corporate earnings were robust, with Samsung (005930.KS), the world’s top memory chipmaker, set to show improved results, sending its shares to a record.