ASIA MARKETS: Asia Stocks Mostly Lower, But Japan Extends Gains

Asia stocks settled mostly lower on Tuesday, but Japanese shares added to their recent run of strong gains. Japan’s Nikkei Average rose for a fourth straight day, ending up 0.2%. The broader Topix index finished slightly higher, up less than 1 point at 1,511.01. The yen (USDJPY) softened versus the dollar, trading at Yen101.858 from Yen101.908 on Monday.

Other major markets slipped, with the Shanghai Composite Index down 0.3%, Hong Kong’s Hang Seng Index off 0.1%, and Australia’s S&P/ASX 200 down 1 point at 5,511.70. However, the Aussie (AUDUSD) strengthened to 92.65 U.S. cents from 92.52 U.S. cents in the previous day.

In Japan, exporters were stronger on the weaker yen, with optical equipment maker Olympus Corp. rising 2.2%, semiconductor manufacturer Renesas Electronics Corp. gaining 1%, and industrial robot maker Fanuc Corp. higher by 0.9%. In the financial sector, banking group Sumitomo Mitsui Financial Group advanced 1.3%, brokerage firm Daiwa Securities Group added 1%, and investment bank Nomura Holdings moved up 0.9%.

In Hong Kong, local retailers took a hit after reports said the Hong Kong government may allow fewer mainland Chinese to visit the city. Cosmetics chain Sa Sa International Holdings tumbled 3.8%, and smaller rival Bonjour Holdings declined 2.3%. Jewelry brands also suffered, as Chow Tai Fook Jewellery Group lost 3.2% and Luk Fook Holdings (International) dropped 0.6%.

China’s cost of clearing the air

In China, just under half the days that made up 2013 registered unhealthy levels of air pollution on a nationwide basis, and 31 days were considered hazardous–this, according to China’s own Environmental Protection Ministry.

Sick of choking from the smoke, the Chinese government is determined to improve air quality, with measures in its previously announced action plan including reducing the use of coal, getting the most-polluting vehicles off the road, and closing down those factories that contribute the heaviest to the problem.

Given this, Société Générale put a note out Monday looking at the economic cost of the cleanup.

Long story short, they see a hit of a little over a third of a percentage point to GDP growth cumulatively between now and 2017, noting that “coal, iron and steel, cement and glass production account for around 16% of overall industrial output and 6% of GDP.”

However, the costs won’t be evenly distributed, the SocGen analysts say.

Geographically, the heavy-industrial northeast of the country will see the most slowing from the pollution action plan. For instance, Hebei province has seen its industrial output slow since September of last year, when the State Council (China’s cabinet) first introduced the plan.

Chronologically, the drag to economic growth may be front-loaded, with SocGen projecting 10 basis points of the 35-basis-point (0.35 percentage-point) penalty to GDP will show up this year, possibly increasing to 13 basis points if the plan’s targets are exceeded.

By Laura He and Michael Kitchen, MarketWatch