Asian Stocks Decline as Korean Shares Fall, Investors Weigh ECB

(Bloomberg) -- Asian stocks fell as investors weighed the outlook for monetary policy in the U.S. and Japan after the European Central Bank downplayed the need for more economic stimulus. South Korean shares dropped after a nuclear weapons test in North Korea.

The MSCI Asia Pacific Index dropped 0.9 percent to 140.77 as of 4:28 p.m. in Hong Kong. The measure is heading for a 1.9 percent advance this week as traders pared bets the Federal Reserve will raise rates at its September meeting while speculation swirled over whether the Bank of Japan will add to already record stimulus. Shares in the U.S. and Europe fell Thursday after ECB chief Mario Draghi played down the prospect of an increase in asset purchases at a time when concern over the impact of Brexit on the euro area is mounting.

“While the ECB disappointed, we could still expect additional stimulus later in the year as there’s so much uncertainty in Europe,” James Woods, a strategist at Rivkin Securities in Sydney, said by phone. “Investors will probably sit on the sidelines ahead of the Fed and Bank of Japan policy meetings.”

South Korea’s Kospi index lost 1.3 percent, its biggest drop since July 6. North Korea conducted its fifth nuclear test on Friday, the anniversary of the reclusive nation’s founding. It detonated a nuclear warhead and the test showed the regime had the ability to mount them onto rockets, according to the official Korean Central News Agency.

Draghi Decides

Europe’s Stoxx 600 index slid 0.3 percent on Thursday while the U.S. S&P 500 Index lost 0.2 percent, retreating from a record high. Draghi said the ECB didn’t discuss an extension to its bond-buying program at its latest meeting, where interest rates were left unchanged.

The European decision comes before this month’s closely watched BOJ meeting, at which the board will announce the results of a comprehensive review of monetary policy and decide whether it should expand easing. The Bank of Korea held its key interest rate unchanged for a third month, citing rising household debt and uncertainty over the Federal Reserve’s coming rate decision.

Japan’s Topix index seesawed from a gain of as much as 0.3 percent to a drop of 0.4 percent before closing 0.2 percent lower, as investors digested news on North Korea and the ECB’s policy decision. Meanwhile, hopes for supportive action from the BOJ were underpinning the market in afternoon trading. The yen added 0.3 percent against the dollar.

TSMC Drops

Taiwan’s Taiex index slipped 1.1 percent as suppliers to Apple Inc. extended losses in the wake of the launch the latest iPhone that doesn’t bring any revolutionary changes. Taiwan Semiconductor Manufacturing Co., the Apple supplier with the biggest weighting on the gauge, fell 1.9 percent, capping its second day of decline after reaching a record on Wednesday.

New Zealand’s S&P/NZX 50 Index declined 0.9 percent, as did Australia’s S&P/ASX 200 Index. Singapore’s Straits Times Index dropped 0.8 percent. The Jakarta Composite Index lost 1.6 percent. India’s S&P BSE Sensex index slipped 0.5 percent.

The Philippine Stock Exchange Index fell 1.1 percent, taking losses this week to 2.9 percent, the most since January, as selling by overseas investors in Asia’s most expensive market accelerated. Foreign funds pulled $221 million this month, heading for the biggest outflow in a year.

Hong Kong Rally

Hong Kong’s Hang Seng Index climbed 0.8 percent to the highest level since August 2015. Chinese shares in Hong Kong rose for a seventh day, increasing 0.5 percent. The Shanghai Composite Index lost 0.6 percent. Data showed China’s factory-gate deflation eased to the least in four years while consumer prices remain muted, giving policy makers fresh evidence that the price outlook is stabilizing along with demand.

Korean Air Lines Co. dropped 4.1 percent in Seoul as the biggest shareholder of Hanjin Shipping Co. discussed possible financial aid for South Korea’s largest container line. BGF Retail Co. tumbled 12 percent after a report the chairman of the South Korean convenience store-chain operator is selling some of his shares. Hong Kong Exchanges & Clearing Ltd. jumped 5.5 percent after China allowed insurance companies to invest in the city’s stock market via an exchange link with Shanghai.