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 Korean exporters, Australian miners and Japanese tourism companies
and exporters have tumbled much more than their respective markets.
Foreigners own only a tiny fraction of Chinese equities but regional
companies that depend on Chinese demand, or are proxies for China
risk, are vulnerable to selling.
The regional fallout could continue, particularly if bans on sales
imposed by Chinese regulators to stem the losses remain in place, or
the relisting of suspended stocks leads to further falls in Chinese
shares.
"If people can't sell in China, the risk is of course that they go
elsewhere," said Herald Van Der Linde, head of Asian equity strategy
at HSBC.
"The anticipation is that they will sell in Hong Kong, in countries
where they have large positions, and in markets that have direct
exposure to China."
Bernard Aw, market strategist at IG in Singapore, noted that
Australian mining stocks and the broader Hong Kong market were
especially vulnerable.
By midday on Friday, Hong Kong's Hang Seng <.HSI>, a fifth of which
is mainland companies, had plunged 9 percent since the Chinese
meltdown began on June 12, while the market in Taiwan, China's
biggest trading partner, had lost 5.9 percent .
In South Korea, companies that export to China were especially hard
hit with LG Electronics and semiconductor manufacturer SK Hynix both
sliding 13 percent since the Chinese crash began on June 12,
compared with a 2 percent decline in the benchmark KOSPI.
REGIONAL REVERBERATION
In Australia, which sells much of what it mines to China, Fortescue
Metals has slumped 26 percent, Rio Tinto 9 percent and BHP Billiton
5 percent, versus a retreat of just 0.7 percent in Australia's S&P/ASX
200.
The yen's traditional status as a safe-haven currency during times
of uncertainty has also had a knock-on effect on Japanese companies.
The currency has gained 3 percent since it hit a 13-year low in
early June.
A strong yen hurts the competitiveness of exporters, and China is a
big market for Japanese manufacturers.
More directly, Japanese firms which benefited from record numbers of
Chinese tourists are now bracing for the prospect many will now stay
away.
"There are growing concerns about whether inbound demand will be
affected," said Dairo Murata, an analyst at JP Morgan. "Shares of
big brands that depend on inbound tourism for profits are seeing a
relatively large depreciation."
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Shares of tourism operators, as well as makers of electronics and
cosmetics products, popular with Chinese consumers but costly to
purchase in China, have declined.
Oriental Land Co, which operates Tokyo Disneyland, has slipped 6.2
percent since June 12, compared with a 2.4 percent drop in the
benchmark Nikkei 225. Shares of Shiseido Co initially rose,
but have lost 4.5 percent since June 24, while Sony Corp has slumped
10 percent.
SUPPORT CALMS NERVES
Beijing has stemmed the market's freefall through a rash of measures
including an interest rate cut, the suspension of initial public
offerings and a ban on sales by investors who hold more than 5
percent of a company for the next six months. About half of Chinese
companies have also halted trading.
These measures helped Chinese shares bounce sharply from Thursday,
reversing an early-week slump that helped to calm nerves. But
analysts and investors remain concerned the sell-off is not over
yet, as stocks suspended may come under pressure when trade resumes.
"If we see massive losses, that could hurt consumer confidence and
Chinese demand as a whole," said Christopher Moltke-Leth, head of
institutional client trading at Saxo Capital Markets.
"If they're not able to stem the current collapse in the market
there is a real risk it will spread to the broader economy,"
Moltke-Leth said, adding it would affect the Asia-Pacific region.
(Reporting by Nichola Saminather; Additional reporting by Joshua
Hunt in Tokyo; Editing by Nachum Kaplan, Shri Navaratnam and
Jacqueline Wong)
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