Asian Markets Slide After Chinese Interest Rate Hike

Asian markets closed lower Wednesday. In China the Shanghai Composite Index lost 0.9%, falling to 2,774 on the first day of trading after Chinese New Year. In Hong Kong the Hang Seng Index fell 1.4% to 23,164 and in Japan the Nikkei 225 Index declined 0.2% to end the day at 10,618.

Chinese investors returning from holiday were greeted by a 25 basis point hike in interest rates. It's the third time the central bank has raised the rates in less than a year. While the increases are intended to stem the flow of cash that's feeding market speculators and ramping up prices of everything from lakefront properties to shampoo and garlic, there isn't much evidence they're working. The country's consumer price index hit a high of 5.1% in November, rose 4.6% in December, and is anticipated to hit 5.3% in January, according to a Bloomberg survey.

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The higher interest rates have hit Chinese developers hard this year, and today was no exception. Despite the sky-high property prices that buyers still seem prepared to pay, shares are sinking. Today Gemdale sank 3.3%, Poly Real Estate plummeted 3% and China Vanke plunged 2%.

Investors pulled cash out of commodities, anticipating that an economic slowdown will sap demand. Jiangxi Copper, a major supplier of metals for plumbing and wiring up all those new skyscrapers, slumped 4.1%, Aluminum Corp. of China slid 3% and Zhuzhou Smelter slipped 1%. Among steelmakers, Maanshan Iron & Steel sank 1.6% and Baoshan Iron & Steel lost 0.6%.

Banks dragged the index lower with a 1.4% loss for Bank of Communications. Agricultural Bank of China and China Minsheng both fell 0.8% and Industrial & Commercial Bank of China dipped 0.5%.

Hong Kong-Listed Real Estate Firms Feel the Pain

China Resources Land plunged 3.9%, R&F Properties plunged 2.5% and Agile Property declined 1.7%. Other big losers included New World Development, which dived 4.2%, Sino Land, which lost 4% and Hang Lung, which sank a whopping 5.5%.

Oil companies retreated steadily with Sinopec slumping 4.6%, PetroChina losing 3.8% and Cnooc falling 2.8%. There were major losses among coal companies with China Shenhua, a coal-based energy company, losing 1.8% and China Coal sliding 1.3%.

Retailers suffered a blow today, perhaps spurred by worries that less cash in the hands of shoppers will sap sales. Yue Yuen plunged 5.6% and Belle International, distributor of Nikes, Reeboks and Converse All Stars as well as Joy & Peace stilettos and JipiJapa flats tumbled 3.4%. Clothing distributors fared no better with Esprit sinking 0.8% and Li & Fung dipping 0.7%.

In Japan, real estate companies were among the worst performers. One office brokerage company reported that Tokyo's office vacancy rate is on the rise, hitting 9% in January, according to nikkei.com. Sumitomo Realty & Development sank 2.8%, Mitsui Fudosan plunged 2.5% and Mitsubishi Estate tumbled 1.8%.

Japanese building and engineering firms followed the trend with Kajima nosediving 5.6% and Obayashi declining 3.1%.

Big Win for Toyota

On the brighter side, Toyota surged 5.2% after raising its yearly profit forecast to 490 billion yen ($5.9 billion) -- that's up from an earlier estimate of 350 billion yen ($4.2 billion). Toyota had additional cause for celebration when a U.S. government investigation found Toyota's electronics were not to blame for the sudden acceleration problems that resulted in massive recalls and millions in fines relating to the company's recall procedures. Regulators say the accidents could have been caused by driver error. It was a big win for Toyota, which is still facing hundreds of lawsuits related to sudden acceleration.

Other Japanese car makers also rose. Nissan climbed 2.5%, Mazda edged up 0.5% and Honda added 0.4%. But no such luck for Isuzu, which dropped 4.6%.