By
Kevin OShaughnessy |
12-21-11 |
03:30 PM | E-mail Article

By Robert Stammers, CFA
Director, Investor Education

Although stocks are supposed to trade at a premium to both cash and book value, stocks of major banks are trading below both of these measures. Are bank stocks priced at a discount or is the market correct with upside-down valuations?

Citigroup Inc. (NYSE: C) has roughly $186 billion in cash on its balance sheet and a market capitalization of $86 billion. Pause for a second and think about the fact that the market value of the company is less than the cash that the company has on hand. Bank of America (NYSE: BAC) is in a similar position. BoA has about $140 billion in cash on the books and roughly $125 billion in common equity (book value), yet the market capitalization is just $63 billion. Normally, market capitalization (which is simply the shares outstanding times the market price) is greater than book value, and book value is greater than cash.

With that in mind, is it justified that these stocks are selling at a discount to cash and book value?

Liquidity Cause to Be Bullish on Banks
Clearly, US banks like Citigroup, Bank of America, and JPMorgan Chase amp; Co. (NYSE: JPM) are in significantly better condition than just a few years ago. The industry as a whole is flush with liquid assets as banks have aggressively raised capital and would-be investors are depositing their cash instead of risking it in an extremely volatile market. These companies are very profitable as well. Bank earnings have been rising at a faster pace than analyst expectations in recent quarters.

US banks have enough access to capital that they are poaching valuable assets from the fire sale happening in Europe. For example, Capital One Financial Corp. (NYSE: COF) bought ING Groep NV’s (NYSE: ING) US online bank for what looks to be a discounted price of $9 billion as well as HSBC Holdings plc’s (NYSE: HBC) US credit card business for $2.6 billion. These two purchases will greatly enhance Capital One’s lending businesses by increasing deposits and making the company the third-largest issuer of private-label credit cards. These transactions characterize the financial strength and flexibility of these cash rich banks.

Headline Risk Cause to Be Bearish on Banks
However, the market just doesn’t trust these companies. The SPDR KBW Bank index (NYSEARCA: KBE), an ETF that tracks the returns of the Samp;P Banks Select Industry Index, is down 26% this year.

Perceived litigation risk continues to put downward pressure on pricing. Even though banks have charged off a huge amount of toxic loans, there’s an almost unlimited amount of liability derived from the government seeking redress against banks who may have packaged bad mortgage-backed loans.

Chris Whalen, founder of Institutional Risk Analytics and a prominent banking analyst, has been among the most vocal critics of the financial industry, stressing among other things that Bank of America should be broken up in a bankruptcy proceeding. He argues that the litigation exposure could be so large that it will bankrupt the company.

In addition to pervasive legal troubles, the major banks are contending with myriad of other business issues. Lagging growth in developed economies, persistently elevated unemployment levels, and some exposure to European debt is also keeping bank stocks at discounted values.

Frustrated by market volatility over the European debt crisis and uncertain US economic outlook, the so-called smart money–hedge funds–has thrown in the towel for 2011 and pulled out of stocks, according to fund managers, SEC filings and exchange data.

European stocks fell for the first
week in three amid concern policy makers won’t be able to stop
the region’s sovereign debt crisis from growing and damaging the
economic recovery.

Societe Generale SA and Banco Comercial Portugues SA (BCP) led a
measure of European bank shares to the lowest since March 2009.
Royal Bank of Scotland Group Plc (RBS) and Barclays Plc (BARC) each sank 13
percent as 17 lenders were sued by the US over the sale of
mortgage-backed securities and interbank lending rates climbed.

The Stoxx Europe 600 Index dropped 3.7 percent to 224.59
this past week as 18 of 19 industry groups declined. The gauge
has plunged 23 percent since this year’s peak on Feb. 17 as
economic data from the US and Europe trailed forecasts and
Standard amp; Poor’s downgraded America’s AAA sovereign-debt
rating, citing political failure to reduce record deficits. The
index is trading at 9.4 times the estimated earnings of its
constituent companies, near the lowest valuation since March
2009, according to data compiled by Bloomberg.

There has been “a whirlwind of sovereign downgrades,
collapsing economic data and stumbling politics across developed
markets” in recent weeks, said Tim Price, chief investment
director at PFP Group LLP in London. “Unsurprisingly, markets
have suffered. We have gone from a consensus of muted recovery
to one of possible double dip.”

Swiss Stocks Gain

National benchmark indexes fell in all of the 18 western
European markets except Switzerland, where the Swiss National
Bank intervened to weaken the franc. France’s CAC 40 declined
5.5 percent, the UK’s FTSE 100 slid 1.5 percent and Germany’s
DAX plunged 6.3 percent. The Swiss Market Index (SMI) gained 1.3
percent, a third straight weekly advance.

The VStoxx Index (V2X), which measures the cost of protecting
against a decline in shares on the Euro Stoxx 50 Index, climbed
24 percent, the biggest gain in a month.

The Stoxx 600 tumbled 4.1 percent on Sept. 5 after German
Chancellor Angela Merkel’s party suffered its fifth election
loss this year as she faced criticism over the handling of the
debt crisis.

European Central Bank President Jean-Claude Trichet on
Sept. 8 said threats to the euro region have worsened and
inflation risks have eased. Planned rescue loans to Greece have
been put in doubt as countries including Finland demand the
country provide collateral in exchange for the funds.

Default Insurance

The cost of insuring against default on European financial
companies rose to a record this week as the ECB comments added
to concern lenders are finding it harder to access funding
markets. Credit-default swaps on Greek government debt surged to
an all-time high, signaling a 91 percent chance the nation will
fail to meet debt commitments, after its economy shrank more
than previously reported.

The rate at which London-based banks say they can borrow
for three months in dollars climbed to the highest level in more
than a year yesterday. The London interbank offered rate, or
Libor, for dollar loans rose to the highest since August 2010,
according to the British Bankers’ Association.

The Stoxx 600 Banks Index dropped 8.4 percent. Societe
Generale, France’s second-largest lender, and BCP, Portugal’s
second-biggest publicly traded bank by market value, fell 21
percent and 17 percent, respectively.

RBS, Britain’s biggest government-owned lender, and
Barclays each fell 13 percent. The banks were among European,
Asian and American lenders sued by the US Federal Housing
Finance Agency on Sept. 2 to recoup $196 billion spent on
mortgage-backed securities bought by Fannie Mae and Freddie Mac.

Porsche Plunges

Porsche SE plunged 15 percent in the week and posted the
worst decline in more than two years yesterday after saying
efforts to combine with Volkswagen AG by the end of 2011 had
failed because of pending lawsuits. Preferred shares of
Volkswagen, Europe’s largest automaker, slid 5 percent.

Verbund AG tumbled 16 percent, the most since 2008, after
Austria’s biggest power company cut its guidance for 2011 and
gave a “cautious” outlook for next year.

YIT Oyj, Finland’s biggest builder, slid 17 percent after
saying excessive levels of ammonia were found in residential
units it built in St. Petersburg, Russia.

Novartis AG, the drugmaker based in Basel, gained 7.9
percent while Cie. Financiere Richemont SA, the world’s second-
biggest luxury-goods company, climbed 6 percent. Investors
bought Swiss exporters after the country’s central bank set a
ceiling for the franc’s value against the euro. The Swiss
currency tumbled 7.3 percent to 1.21 per euro, the biggest
weekly drop since the creation of the single currency.

Tullow Oil Plc (TLW) jumped 27 percent, the most since 2008. The
UK explorer behind West Africa’s biggest offshore discovery in
a decade said an offshore find in French Guiana opened up a new
hydrocarbon basin on the other side of the Atlantic.

To contact the reporter on this story:
Alexis Xydias in London at
axydias@bloomberg.net

To contact the editor responsible for this story:
Andrew Rummer at
arummer@bloomberg.net

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10

By Claudia Assis, MarketWatch

SAN FRANCISCO (MarketWatch) — Crude-oil futures settled 2% lower Friday, felled by a double whammy of a rising dollar and collapsing stocks that not even a storm in the Gulf of Mexico could prevent.

Crude for October delivery

/quotes/zigman/2075830 CL1V
-1.68%

 retreated $1.81 to $87.24 a barrel on the New York Mercantile Exchange.

Oil has settled in the red for four of the past five sessions. On the week, however, oil added 0.9%.

Losses mounted for oil and most other commodities as U.S. equities took a nosedive following news a German member of the European Central Bank had resigned, and reports German officials had readied a plan to help their banks in case Greece doesn’t meet bailout obligations.

Click to Play

Fears mount in euro zone

The euro has sunk to its lowest level in more than six months on the heels of the ECB chief economist's departure and fears are intensifying over the EU financial crisis.

Governing Council member Juergen Stark stepped out because of disagreements over the bank’s bond-buying program.

His exit served as a painful reminder of the divisions still ripping through the 17-nation euro zone and the simmering sovereign-debt crisis.

There are concerns the European crisis “is getting worse, not better, and the U.S. economy is not strengthening,” said Peter Beutel, with trading advisory firm Cameron Hanover in Connecticut.

The steep losses for equities, seen as a proxy for future oil demand, dulled any benefits from President Barack Obama’s job plan unveiled late Thursday.

Obama asked Congress to approve a $440 billion program to create jobs and boost the U.S. economy, using a combination of tax cuts and government spending. Investors had expected a plan of around $300 billion.

“It does not very much look like it’s going to succeed as much as (Obama) hoped,” with Republican support difficult to achieve, Beutel said.

Meanwhile, finance ministers and central bankers of the seven top industrialized nations have gathered in the French port city of Marseilles, but hopes have faded they will bring forward measures to jump-start the global economy.

The dollar index

/quotes/zigman/1652083 DXY
+0.35%

 , which measures the U.S. unit against a basket of six major rivals, rose to record levels as the euro tanked. The index most recently gained to 77.152, up from 76.284 late Thursday in North American trading.

A stronger dollar is a negative for oil and other commodities as it makes them more expensive for holders of other currencies.

Meanwhile, Tropical Storm Nate drifted in the Gulf of Mexico. It was expected to become the third hurricane of the Atlantic season and the first in the Gulf later Friday.

Its impact was dulled by the equities and dollar markets, Beutel said. “Today, people are thinking more about demand than supply,” he said.

Some oil companies such as BP PLC

/quotes/zigman/247026/quotes/nls/bp BP
+0.43%

 and Apache Corp.

/quotes/zigman/218137/quotes/nls/apa APA
+0.40%

 said they are beginning evacuations of non-essential workers from offshore platforms, according to media and analyst reports.

“Although at this point Nate does not appear to threaten major oil-producing areas, it comes just as producers are recovering from [Tropical Storm Lee] last week and is a useful reminder that we not even halfway through the hurricane season yet,” analysts at J. P. Morgan said in a note to clients Friday.

Gasoline for October delivery

/quotes/zigman/2075614 RB1V
-0.10%

 was off 11 cents, or 4%, to $2.77 a gallon. October heating oil

/quotes/zigman/2075599 HO1V
-0.89%

 declined 6 cents, or 1.9%, to $2.99 a gallon.

On the week, gasoline lost 2.5%, while heating oil declined 0.3%.

October natural gas retreated 6 cents, or 1.6%, to $3.92 per million British thermal units. On the week, natural gas rose 1.3%.

/quotes/zigman/2075830

Add CL1V to portfolio

CL1V

Crude Oil – Electronic (NYMEX) Oct 2011

$
87.90

-1.50
-1.68%

Volume: 196,146
Sept. 16, 2011 5:14p

/quotes/zigman/1652083

Add DXY to portfolio

DXY

U.S. Dollar Index (DXY)

76.54

+0.27
+0.35%

Volume: 0.00
Sept. 16, 2011 5:32p

/quotes/zigman/247026/quotes/nls/bp

Add BP to portfolio

BP

BP PLC ADS

$
39.69

+0.17
+0.43%

Volume: 10.30M
Sept. 16, 2011 4:04p

/quotes/zigman/218137/quotes/nls/apa

Add APA to portfolio

APA

Apache Corp.

$
98.20

+0.39
+0.40%

Volume: 3.78M
Sept. 16, 2011 4:03p

/quotes/zigman/2075614

Add RB1V to portfolio

RB1V

RBOB Gasoline – Electronic (NYMEX) Oct 2011

$
2.78

-0.0028
-0.10%

Volume: 32,849
Sept. 16, 2011 5:14p

/quotes/zigman/2075599

Add HO1V to portfolio

HO1V

Heating Oil – Electronic (NYMEX) Oct 2011

$
3.00

-0.03
-0.89%

Volume: 39,464
Sept. 16, 2011 5:14p

Claudia Assis is a San Francisco-based reporter for MarketWatch.

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10

By MarketWatch

SAN FRANCISCO (MarketWatch) — Utility stocks were shaken Friday as investors reacted to the biggest blackout to hit California in years.

Initial reports trace the blackout to a faulty transmission line operated by Arizona Public Service Co., a unit of Pinnacle West Capital Corp.

/quotes/zigman/238424/quotes/nls/pnw PNW
+1.05%

. But the brunt of the outage was felt by customers of Sempra Energy’s San Diego Gas & Electric, California’s third-largest publicly-traded utility.

Reuters

Traffic and pedestrians move through a powerless intersection following a power outage in the Cardiff Calif., a San Diego suburb, on Thursday. The massive outage left well over a million people without electricity in Southern California and parts of Arizona and Mexico.

The outage cascaded from Arizona across the Southern California grid, leaving nearly 1.5 million homes and businesses without electricity at the hottest time of day, disrupting business and traffic at the peak of the evening commute.
Read about the power outage.

The cause of the outage is under investigation. But Wall Street’s reaction didn’t wait to hear who, or what, was to blame. At their first opportunity, investors dumped Sempra

/quotes/zigman/208898/quotes/nls/sre SRE
+1.53%

 shares, pushing the stock down as much as 3%. That’s a huge one-day move for a company whose main business is government-regulated to ensure a steady profit from a captive market.

Investors didn’t stop with Sempra. They bolted from other power companies as well. Shares of neighboring Edison International

/quotes/zigman/158143/quotes/nls/eix EIX
+0.99%

, which serves the greater Los Angeles area, fell 2.2%. Further north, San Francisco-based PG&E

/quotes/zigman/171662/quotes/nls/pcg PCG
+1.47%

  shares dropped 2.8%. The Dow Jones Utilities Index

/quotes/zigman/627451 DJU
+0.92%

  tumbled nearly 2.8% in early action.

These are all big moves for a sector that plods along paying regular dividends with little fanfare. Utility stocks are routinely touted as reliable, even boring, investments for those who want to shield their money from market volatility.

That view, of course, completely ignores those episodes when utility stocks are anything but boring.

Friday, it was Sempra’s turn to provide the excitement. Exactly a year ago, it was PG&E, whose 30-inch gas line into San Francisco exploded into a horrific fireball that killed eight people and incinerated 55 homes in the nearby suburb of San Bruno.

We don’t know what caused the San Diego power outage, and it appears no lives were lost as a result. But a year after the San Bruno tragedy, state and federal investigators turned in scathing reports on PG&E’s maintenance record.

While PG&E might be the poster boy for how not to run a utility, all utilities are under constant pressure to keep their famous dividends flowing. Sometimes that puts proper maintenance at the mercy of profits, and that’s when accidents happen.

Unlike natural disasters, these accidents expose utilities to costly remediation and lawsuits that regulators won’t always allow them to pass down to customers. That puts some of the burden on shareholders.

So while utilities might generally be classified as low-risk investments, that’s not the same as no-risk investments. Especially in California.

–
Jim Jelter

/quotes/zigman/238424/quotes/nls/pnw

Add PNW to portfolio

PNW

Pinnacle West Capital Corp.

$
44.10

+0.46
+1.05%

Volume: 162,551
Sept. 16, 2011 9:50a

/quotes/zigman/208898/quotes/nls/sre

Add SRE to portfolio

SRE

Sempra Energy

$
53.06

+0.80
+1.53%

Volume: 381,391
Sept. 16, 2011 9:50a

/quotes/zigman/158143/quotes/nls/eix

Add EIX to portfolio

EIX

Edison International

$
37.63

+0.37
+0.99%

Volume: 489,263
Sept. 16, 2011 9:51a

/quotes/zigman/171662/quotes/nls/pcg

Add PCG to portfolio

PCG

PG&E Corp.

$
42.14

+0.61
+1.47%

Volume: 648,761
Sept. 16, 2011 9:51a

/quotes/zigman/627451

Add DJU to portfolio

DJU

Dow Jones Utility Average Index

438.91

+4.01
+0.92%

Volume: 12.89M
Sept. 16, 2011 9:51a

Sept. 9 (Bloomberg) — Stephen Wood, chief market strategist at Russell Investments, talks about the outlook for US stocks.
Wood also discusses consumer shares, Europes sovereign debt crisis and his investment strategy. He speaks with Carol Massar, Matt Miller, Sheila Dharmarajan and Julie Hyman on Bloomberg Televisions Street Smart. (Source: Bloomberg)

* European Cental Bank member Stark to step down

* President Obama lays out $447 billion jobs plan

* Bank of America discussing about 40,000 job cuts

* Indexes down: Dow 2.6 pct, Samp;P 2.5 pct, Nasdaq 2 pct

* For up-to-the-minute market news see [STXNEWS/US]
(Changes byline, updates to late morning trade)

By Angela Moon

NEW YORK, Sept 9 (Reuters) - Wall Street stocks tumbled on
Friday after the surprise resignation of a European Central
Bank executive board member brought concerns over the regions
debt back to the fore.

Investors also remained skeptical about how much of
President Barack Obamas $447 billion proposal to generate US
jobs would make it through Congress. Obama on Thursday night
challenged Congress to enact tax cuts and new spending to
revive a stalled job market, but he faces an uphill fight to
win over Republicans.

Finance chiefs from the Group of 7 richest nations are set
to meet on Friday, and the group is under heavy pressure to
take action to revive flagging economic growth and calm the
biggest confidence crisis in financial markets since the global
credit crunch. For details, see [ID:nN1E78728T]

Starks resignation is suggesting that there is a lot of
pressure being built in the senior levels in the ECB, said
James Dailey, portfolio manager of TEAM Asset Strategy Fund in
Harrisburg, Pennsylvania. There is an increasing realization
that this is a major solvency issue in the banking system,

ECB Executive Board Member Juergen Stark will step down
from his post, the bank said on Friday, with two sources
telling Reuters it was because of a conflict over the central
banks controversial bond-buying program.

The Dow Jones industrial average .DJI was down 290.02
points, or 2.57 percent, at 11,005.79. The Standard amp; Poors
500 Index .SPX was down 29.79 points, or 2.51 percent, at
1,156.11. The Nasdaq Composite Index .IXIC was down 51.51
points, or 2.04 percent, at 2,477.63.

Bank of America Corp (BAC.N) officials have discussed
slashing roughly 40,000 jobs during the first wave of a
restructuring, the Wall Street Journal said, citing people
familiar with the plans. The cuts aim to reduce the banks
workforce of 280,000 over a period of years, the Journal
wrote.

Shares of the Dow component fell 1.8 percent to $7.07.

A number of brokerages, including Jefferies, cut price
targets on Texas Instruments Inc (TXN.N) after the company
warned its third-quarter earnings and revenue would be worse
than already low expectations. [ID:nN1E787113] The stock was up
1 percent to $26.08 after trading as low as $25.52 earlier.

McDonalds Corp (MCD.N) fell 4.1 percent to $84.99 after
its August restaurant sales rose less than analysts expected.
[ID:nN1E7860MC]

On the New York Stock Exchange, decliners were beating
advancers by a ratio of nearly 10 to 1, while on the Nasdaq,
about four stocks fell for every one that rose by late morning
trade.
(Editing by Padraic Cassidy)

Asian stocks fell this week,
snapping a fortnight of advance, as exporters dropped on
speculation the world’s largest economy is headed toward
recession and banks slid amid concern Europe may fail to contain
its sovereign debt crisis.

Honda Motor Co., a carmaker with more than 40 percent of
its revenue in North America, plunged 6.4 percent in Tokyo after
a report showed the US job market stalled in August. BHP
Billiton Ltd. (BHP) sank 2.9 percent in Sydney. HSBC Holdings Plc (HSBA),
Europe’s largest lender by market value, slumped 3.3 percent in
Hong Kong after the cost of insuring against default on European
sovereign and financial debt surged to records. Fanuc Corp. (6954)
tumbled 15 percent after an industry group said growth in
machine-tool orders slowed.

“It’s clear the US economy needed more stimulus as
there’s a limit to what monetary policy can do,” said Stephen Halmarick, Sydney-based head of investment markets research at
Colonial First State Global Asset Management, which oversees
about $150 billion. “There’s growing concern that the
sovereign-debt crisis in the EU is now manifesting into a sharp
slowdown in the economy and a banking crisis,”

The MSCI Asia Pacific Index fell 2.7 percent this week to
120.78, snapping a 3.9 percent two-week advance. The gauge
tumbled 8.6 percent last month amid escalating concern over
Europe’s debt crisis and after Standard amp; Poor’s downgraded the
US’s credit rating. Stocks in the Asian benchmark are valued
at about 11.9 times estimated earnings on average, compared with
11.5 times for the Samp;P 500 and 9.3 times for the Stoxx 600.

Nikkei, Kospi

Japan’s Nikkei 225 (NKY) Stock Average dropped 2.4 percent in a
week when the Cabinet Office also said Japan’s economy
contracted more than an initial government estimate. Australia’s
Samp;P/ASX 200 Index slipped 1.1 percent after a statistics bureau
report showed the nation’s employers unexpectedly cut jobs for a
second straight month in August.

South Korea’s Kospi Index (KOSPI) slid 2.9 percent and Hong Kong’s
Hang Seng Index (HSI) retreated 1.7 percent. The Shanghai Composite
Index slid 1.2 percent this week.

Honda, which counts North America as its biggest market for
sales, plunged 6.4 percent to 2,347 yen in Tokyo. Canon Inc. (7751),
which earns more than 80 percent of its sales overseas, declined
2.9 percent to 3,490 yen. James Hardie Industries SE (JHX), a building
materials supplier that gets almost 70 percent of sales from the
US, sank 4.2 percent to A$5.78 in Sydney.

A report Sept. 2 showed US payrolls were unchanged in
August, the weakest reading since September 2010. The median
forecast in a Bloomberg News survey called for an increase of
68,000.

‘Scary Report’

“It was a scary report,” Dan North, chief US economist
at Euler Hermes ACI in Owings Mills, Maryland, said in an
interview from Singapore with Susan Li on Bloomberg Television
on Sept. 5. “When you get to negative job growth, which we’re
very close to now, it means you’re already in a recession.”

Stocks fell even as US President Barack Obama outlined a
jobs plan that would inject $447 billion into the economy, and
Federal Reserve Chairman Ben S. Bernanke said policymakers will
discuss ways to boost growth at their next meeting.

Fed officials gather for a two-day meeting on Sept. 20 that
was expanded from the one day originally scheduled to “allow a
fuller discussion” of the economy and the central bank’s
possible policy response.

BHP, Jiangxi

BHP Billiton, the world’s No. 1 mining company and
Australia’s biggest oil producer, fell 2.9 percent to A$37.91 in
Sydney. Rio Tinto Group, the second-largest miner by sales, slid
1.1 percent to A$71.25. In Hong Kong, Jiangxi Copper Co.,
China’s No. 1 producer of the metal, slumped 4.6 percent to
HK$20.95, while Chinese oil explorer Cnooc Ltd. (883) tumbled 9.3
percent to HK$14.

Belle International Holdings Ltd. (1880), a Chinese retailer of
women’s shoes, plunged 10 percent to HK$14.60 in Hong Kong and
Tencent Holdings Ltd. (700), a Shenzhen-based Internet company, lost
1.5 percent to HK$184.50.

China’s inflation eased in August from a three-year high,
the National Bureau of Statistics said in Beijing on Sept. 9.
Still, consumer prices climbed 6.2 percent from a year earlier.
A separate report showed industrial output growth in China
trailed estimates.

Asian stocks also slipped this week after an election loss
for German Chancellor Angela Merkel’s party and reports of a
rift between Greece and the International Monetary Fund fueled
concern that support for bailing out indebted European nations
is waning. Later in the week, European Central Bank President
Jean-Claude Trichet said “downside risks” for the region have
risen, while resisting calls to lower interest rates.

Financial Stocks

HSBC fell 3.3 percent to HK$64.95 in Hong Kong. Korea
Exchange Bank (004940) retreated 4.3 percent to 7,590 won in Seoul.
Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender by
market value, declined 2.9 percent to 332 yen in Tokyo after the
cost of insuring against default on European sovereign and
financial debt surged to records.

Investors drove yields higher on the bonds of Greece,
Portugal, Spain and Italy early in the week on doubts Europe’s
leaders will be able to stop the crisis spreading. The yield on
the Greek two-year note rose above its price for the first time
on Sept. 5, indicating mounting concern the nation will default
on the debt.

Lasting Solution

“Volatility is likely to remain high until there’s clarity
around Europe’s ability to work out a lasting solution,” said
Nader Naeimi, a Sydney-based strategist for AMP Capital
Investors Ltd., which manages almost $100 billion. “Right now,
it seems policy makers are going in the opposite direction.
While the fundamentals in Asia are in better shape than
elsewhere, shares here will get caught up in the crossfire.”

Fanuc, Japan’s No. 1 maker of controls used to run machine
tools, fell 15 percent to 10,730 yen, after the Japan Machinery
Tool Builders’ Association said growth in Japanese orders slowed
in August, falling 12.7 percent from July. A separate Cabinet
Office report this week said Japanese machinery orders fell 8.2
percent in July after rising 7.7 percent in June.

Komatsu Ltd. (6301), the world’s No. 2 maker of construction
equipment and Japan’s largest construction machinery maker, sank
14 percent to 1,797 yen.

Technology Shares

Among stocks that advanced this week, Hynix Semiconductor
Inc. (000660), the world’s second-largest maker of computer memory,
jumped 4.2 percent to 19,900 won in Seoul, leading some
technology stocks higher on speculation chip prices will recover.
Samsung Electronics Co. gained 1.4 percent to 780,000 won.

The price of the benchmark DDR3 2-gigabit DRAM has fallen 3
percent this month after falling 14 percent in August, according
to data from Taipei-based Dramexchange Technology Inc., operator
of Asia’s largest spot market for semiconductors.

“There’s some consensus that the chip market is near its
bottom,” Ahn Seong Ho, an analyst at Hanwha Securities Co. who
covers technology stocks, said in Seoul.

To contact the reporters on this story:
Shani Raja in Sydney at
sraja4@bloomberg.net.

To contact the editor responsible for this story:
Nick Gentle at
ngentle2@bloomberg.net

LONDON/HONG KONG–World stocks retreated Friday after US Federal Reserve Chairman Ben Bernanke offered no immediate support for the ailing US economy and Chinese economic data showed inflation remaining high while industrial production eased.