Japanese Drug Companies Surge Thanks to Brown Election, Chinese Banks Tumble

Shares in Asia closed lower Wednesday. In China, the Shanghai Composite Index slid 2.9% to close at 3,152 and Hong Kong's Hang Seng Index fell 1.8% to 21,286. In Japan, the Nikkei 225 Index shed 0.3%, ending the day at 10,738.

Shares in Japanese drug companies gained today, benefiting from the Massachusetts election of Republican senator Scott Brown. Analysts predict that another Republican in the Senate could spell disaster for Obama's health care bill. The bill would severely limit the amount of money Americans would pay for their drugs, leaving Japanese drug companies with less profits from U.S. sales.

The side effect of Brown's election was a boost to drugmakers. In Japan, Astellas, which gets 27% of sales from North America, according to Bloomberg, climbed 2.7%; Eisai Co rose 2.5%; Takeda Pharmaceutical gained 1.7%; and Chugai Pharmaceutical, which makes the ovarian cancer drug Avastin, added 0.6%.

Japan Airlines fell to a record low of 2 yen today after filing for bankruptcy yesterday. Companies invested in JAL are deciding how to handle their investment in the carrier, with general trading company Sojitz Corp becoming the first to write off the debt by taking a charge of $165 million. Other investors include Sumitomo Mitsui, which fell 1.4% today, Mizuho Financial, which was down 1.1% and Mitsubishi UFJ, which lost 0.8%.

In China, strict lending limits imposed by regulators sent banking shares tumbling. According to a report by the Wall Street Journal, the China Banking Regulatory Commission has stopped some banks from making new loans for the remainder of January, stoking fears that liquidity will dry up. The Commission also recently upped the required amount of cash banks must hold in proportion to the loans on their books. In today's trading, Chinese banking shares were down sharply: Industrial & Commercial Bank of China plunged 2.6%, Bank of Communications fell 2.5%, China Construction Bank sank 2.4% and Bank of China lost 1.7%.

In Hong Kong, banking shares also fell. In addition to losses by Hong Kong-listed Chinese banks, HSBC, the most heavily weighted stock on the Hang Seng, lost 1%.

The real estate sector was also hard hit today, as fears of tightening fiscal policy on the mainland could curb sales of newly built luxury properties often sold as second homes, which will incur additional taxes for buyers, or are simply priced too high for the average Chinese to purchase without a mortgage. Cheung Kong Holdings fell 1.4%, Henderson Land Development tumbled 2.5% Glorious Property, which specializes in deluxe properties with names like Chateau de Paris and Sunshine Venice (both located in Shanghai), dropped 2.4% today. Dream homes like these may remain a mortgage away for Chinese aspiring to the good life.
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