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ASEAN blue chips, resource stocks hammered despite China rate cut

BANGKOK -- Though Southeast Asian stocks saw a slight rebound Wednesday following overnight interest rate cuts by China's central bank, the gains were too modest to wipe out the losses from the previous two days.

     Blue chips across the region were sold as anxiety over weakening currencies and cheaper commodities lingered. Of the 122 major companies selected by the Nikkei Asian Review as the "ASEAN 100," 97 were losers -- led by Malaysia's AirAsia, which fell nearly 20% over the three days.

     Risk-hedging investors shunned the low-cost carrier on worries about its ability to raise funds at its Indonesian subsidiary. AirAsia may be banned from operating in Indonesia if it fails to raise $150 million by Sept. 20, following new requirements from Indonesia's transport ministry to pump up capital to ensure aviation safety. The subsidiary had a negative equity position of 3.035 trillion rupiah ($220 million) as of March 31.

     "We will monitor this development closely as it is too early to gauge the feasibility of this idea for now," Maybank Research said in a note to clients Friday, referring to the fundraising.

     Shares of Indofood Sukses Makmur, Indonesia's largest food company, have fallen 14% since Friday's close to trade at a three-year low. The company's substantial foreign-denominated debt means its foreign exchange losses tend to rise when the rupiah falls against the U.S. dollar.

     Foreign exchange losses drove Indofood's net profit down 25% in the January-June half from the year-ago period. With the rupiah tumbling past 14,000 against the dollar this week, local brokerage Danareksa Sekuritas says the company's losses may increase in the coming quarters.

     A weaker currency inflates losses at airlines, too, as many use foreign currencies to buy aircraft. Garuda Indonesia and Thai Airways International were among the top losers.

Resource companies blasted

Falling commodity prices are hitting resource-oriented companies. Thailand's PTT Exploration & Production shed more than 10% this week. It is investing in oil and gas projects in 11 countries, and falling crude prices are eating into profits. Net profit plunged 97% on the year in the second quarter through June.

     Singapore's agri-commodity companies Wilmar International and Olam International have been hit hard by heightening concern that weaker commodity prices will hurt their revenue. Wilmar, one of the world's largest palm oil producers, has been affected by falling crude palm oil prices. Wilmar's share price dropped 8% this week, while Olam's fell 4%.

     Coal miners have faced investor concerns due to their heavy dependence on the Chinese market on top of falling coal prices. Shares at Philippine infrastructure conglomerate DMCI Holdings fell 6.5% Wednesday from Aug. 20, the last trading day in the Philippines last week. Coal mining operations were suspended after a fatal accident last month, and investors apparently were aware that the company's largest coal export destination is China, said Lexter Azurin, head of research at Unicapital Securities.

     China accounts for 20% of coal sales at Thailand's Banpu. The company also operates mines and thermal power plants in the country. Its shares lost 8.2% this week.

     A slowdown in China also means fewer tourists in many Southeast Asian countries. Shares at Philippine casino operator Bloomberry Resorts fell 8.2% from Aug. 20. The company's stock had already taken a hit from disappointing first-half losses two weeks ago.

Domestic-demand stocks rise

Shares rose for only 21 ASEAN 100 companies, or around 17%. Most of them were domestic-demand stocks as investors altered their portfolio to weather risks outside the region.

     "With so many uncertain external factors, investors prefer defensive stocks such as staples and consumer goods," said Harry Su, head of research at Indonesian brokerage Bahana Securities.

     Unilever Indonesia, the nation's largest household goods producer, and Kalbe Farma, the top pharmaceutical company, rose 2% from Friday's close.

     Telecoms were among the few gainers, as Malaysia's Axiata Group climbed 5.7%. Axiata, which derives 60% of its revenue from outside Malaysia, said it is profiting from a weakened ringgit. To mitigate foreign exchange losses, the company wants to convert dollar-denominated loans into local currencies at its Indonesian subsidiary.

     The Philippines' Cebu Air shed only 1.4% while other regional airlines were battered. "The Philippines, as an archipelago, is reliant on Cebu Pacific when it comes to inter-island transportation," Azurin said, noting that the country's domestic consumption remains strong.

     Some companies look to take advantage of the headwinds. State-owned cement producer Semen Indonesia jumped 13% Wednesday on media reports that it will buy back up to 1 trillion rupiah ($70 million) in shares. Financial regulators have introduced measures to stabilize the stock market, such as relaxing requirements for companies buying back their own shares.

Slide 'unlikely to turn soon'

Though their declines are small compared with mainland Chinese counterparts, major indexes of the Southeast Asian bourses are not immune from the renewed global equity market collapse this week. The Philippine Stock Exchange index is hardest hit, losing 5.6% this week. On Monday alone, it lost 6.7% to erase this year's gains. The new "Black Monday" also marked the largest one-day drop since the "taper tantrum" in June 2013, when the U.S. Federal Reserve warned of its curtailing a quantitative easing program.

     The SET Index continued its fall after the fatal bombing in central Bangkok on Aug. 17. Both Thailand and Singapore's ST Index have dropped over 3% this week. The 2.3% loss in Jakarta seems mild after being the largest loser last week among the five major ASEAN benchmark indexes.

     ASEAN shares have been sliding for a while.

     "The past month has seen a sharp sell-off in Asian equities, with Southeast Asian markets being the hardest hit," Kelvin Tay, regional chief investment officer of southern Asia Pacific at UBS, said in a report Tuesday. "Unfortunately, the tide appears unlikely to turn soon," as the "fall in commodity prices, slower growth and volatility in external funding are likely to prove even more challenging for these markets."

     He remains "underweight" in Southeast Asia, with Singapore being the relatively preferred market due to its lower volatility and "more defensive characteristics."

Nikkei staff writers Wataru Suzuki in Jakarta, Cliff Venzon in Manila, CK Tan in Kuala Lumpur and Mayuko Tani in Singapore, and Nikkei deputy editor Kenji Kawase in Bangkok contributed to this article.

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