Airlines lose altitude after oil shock

SHIFTING commodity prices were the prime drivers of Asian equities today as investors absorbed the implications of a September surprise from oil producers.

The Organisation of Petroleum Exporting Countries' unexpected decision to trim output put the skids under Wall Street as the oil price spiked. Gold, too, went on a tremendous run, hitting levels not seen since 1996.

The first to receive a bout of flak were the airlines. Hong Kong's Cathay Pacific, whose shares have been dented by talk that the killer Sars virus may return this winter, dropped 15 cents or 1.2% to HK$12.40.

China Eastern Airlines, based out of boomtown Shanghai, slumped two cents, or 1.7%, to HK$1.15, while China Southern also lost altitude, shedding 7.5 cents to HK$2.65, a 2.7% drop.

Fuel costs typically account for up to a fifth of an airline's operating expenses and, if the Opec cartel sticks to its guns, keeping planes in the air will become more costly in the long run. On the flipside, oil and gas producers nosed higher. PetroChina, an Asian favourite of legendary investor Warren Buffett, gained 10 cents or 4% to HK$2.625, oil producer CNOOC added 10 cents to HK$13.75, a 0.8% gain, and Sinopec was better by five cents at HK$2.175, a rise of 2.4%.

An advance for banking plays helped limit the damage to Hong Kong's lead index as they benefited from funds switching out of property plays after their recent decent run.

Global player HSBC put on 50 cents, or 0.5%, to HK$104.50, while Bank of East Asia was firmer by 10 cents, or 0.5%, at HK$19.55. The 33-member Hang Seng index was 8.57 points lower at 11,287.32.

In Japan, the picture was complicated by the ongoing fallout from the surge in the yen against the dollar, now extended to a fourth day. But, as in Hong Kong, airlines were at the forefront of selling pressure. All Nippon Airways (ANA) plunged 19 yen, or 6.2%, to 287, while Japan Air System (JAS) was punished with a 10-yen, or 3.2% drop, to 307.

Exporters continued their painful slide, kicked in the shins by the more robust Japanese currency. Toyota lost 130 yen, or 3.7%, to 3360, taking its losses since the start of the week close to a sizeable 10%.

Nissan was down 55 yen to 1190, a 4.4% slip, and Honda shed 120 yen, or 2.5%, to 4620.

But it was banks that took the greater hit as investors priced in the effect of the lenders' own equity holdings in a weaker market. Supervolatile Mizuho, the world's biggest lender by assets, was battered 23,000 yen, or 9.8%, to 212,000.

The Nikkei 225 Average closed down 192.25 points, or 1.8%, at 10,310.04, near to its lowest standing in about a month.

In Australia, the sun shone on gold diggers. Newcrest Mining jumped 31 cents, or 2.8%, to A$11.24, rival Creosus Mining gained three cents, or 4.2%, to 75 cents and Lihir Gold fetched A$1.75, up four cents, or 2.3%.

In line with the aviation sector's pullback, Qantas descended seven cents or 2.1% to A$3.23. New Zealand regulators said today they will mull over, for a further month, the carrier's bid for a tie-up with Air New Zealand. Australia's All Ordinaries index was at 3174.6 points, down 34.5 or 1%.