* Historic, landslide opposition win in Japan boosts yen
* Shanghai stocks fall to 3-mth low, hitting risk taking
* Valuations of Asia stocks losing lustre?
(Repeats to more subscribers)
By Kevin Plumberg
HONG KONG, Aug 31 (Reuters) - Chinese stocks sank 6 percent
to a three-month low on Monday, weighing on Asian shares,
sapping investor willingness to take risks and giving the yen
an added boost after Japanese voters swept the opposition into
power.
The election results, while widely anticipated, sparked
some short-term buying of yen on hopes that new policies will
support consumer spending in an economy trapped in deflation
and haunted by a weak growth outlook, though domestic stocks
slipped on exporter weakness. []
Major European stock futures fell 0.9 percent <STXEc1>,
following commodity prices lower, in trade thinned by a holiday
in London. U.S. stock futures fell 0.6 percent <SPc1> and U.S.
Treasury futures <TYc1> were up 0.2 percent.
Outside of Japan, volatility in Shanghai, a market largely
closed to foreigners, has curbed risk taking and has been
weighing on the Australian dollar, which is a common target for
investors searching for bigger returns because of its
relatively high yields.
Shanghai-listed shares dropped 6.2 percent <> on the
day, on track to post losses of 21 percent in August, only the
second month that the composite index has fallen more than 20
percent in the last 15 years.
The index also crucially dropped below the 125-day moving
average, what is viewed by many domestic investors as the
threshold for bear and bull markets.
Fears that banks will rein in their lending after a torrid
first six months of the year and an abundant supply of expected
new shares have been knocking Chinese shares lower for the last
month, often weighing on global investor sentiment about
holding riskier assets.
Shares of Bank of China <601988.SS>, the country's biggest
foreign exchange lender, were down 3.9 percent in Shanghai and
the top drag on the market. Hong Kong's Hang Seng <>
dropped 1.8 percent to a one-month low in sympathy with
Shanghai.
Tokyo's Nikkei share average <> fell 0.4 percent.
Large exporters Canon Inc <7751.T> and Honda Motor Corp
<7267.T> were among the biggest drags on the Nikkei, losing
around 3.3 percent and 1.8 percent, respectively, on the
stronger yen.
Australian stocks also performed relatively well, falling
only 0.2 percent. Shares of Australia and New Zealand Banking
Group Ltd jumped 4.1 percent after the country's fourth-largest
lender said it was starting to see bad debt provisions bottom
out. []
The MSCI index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> slid 1.3 percent. The selling was widespread,
hitting the consumer discretionary, energy, telecommunications
and materials sectors.
ASIA STOCK'S VALUATIONS QUESTIONED
Asian stocks are trading at a price-to-book valuation of
1.1 times, above the 30-year average of 0.7 times and around
the same level at the peak of the last bull market.
Investors since March had been justifying the premium based
on the region's growth prospects and its expected speedy
recovery from the global downturn. Yet in August developed
markets, such as the United States and Europe, have attracted
investors away from emerging markets thanks to better economic
data.
The Asian stock rally sputtered in July and August for two
reasons, according to Mark Matthews, Asia Pacific strategist
with Fox-Pitt Kelton ini Hong Kong.
"The first is that the U.S. in particular and the developed
world in general are experiencing economic recoveries that are
more robust than previously expected. The second is that there
is policy shift in China, and even the doves there are happy
that asset prices are no longer rising quickly," he said in a
note.
YEN FOR YEN
In the currency market, the yen got an early boost on the
clear-as-day election result, which eliminated any uncertainty
about Japan's political leadership. The sharp selloff in
Shanghai equities also supported the yen as dealers sought a
safe haven.
The U.S. dollar fell 0.7 percent to 92.75 yen <JPY=>, the
lowest since July 13, and the euro dropped 1 percent to 132.28
yen <EURJPY=>.
The sharp decline in Chinese stocks "has muddied the
picture as well as to whether it's a reaction to the election
victory or risk aversion. It's probably a bit of a combination
of both," said a dealer at a European bank in Hong Kong about
the yen strength.
For a graphic on the Japanese election results, click on:
http://graphics.thomsonreuters.com/089/JP_PLTC0809.gif
The Australian dollar was off 0.6 percent to US$0.8373
<AUD=>, though was largely unchanged in August.
The yield on the benchmark 10-year U.S. Treasury note
<US10YT=RR> slipped to 3.43 percent, down sharply since hitting
4 percent on June 10.
The creeping rise of risk aversion in markets pushed down
oil prices, with U.S. crude for October delivery down 0.7
percent to $72.22 a barrel <CLc1>. Brent was down 0.9 percent
to $72.12 a barrel <LCOc1>.
(Editing by Kazunori Takada)
