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Asian stocks sold off heavily in Thursday's trading, with indices suffering their worst collective one-day decline since August, prompted by heavy selling in financials.

China's Shanghai Composite Index plunged 271 points, or 4.85%, to 5330, while in Hong Kong the Hang Seng tumbled 948 points, or 3.19%, to 28,760.

In Japan, the Nikkei slipped 325 points, or 2.02%, to 15,771, while the Topix shed 40 points, or 2.5%, to 1516. The Korean Kospi, which has been surging in recent weeks on Chinese bargain hunting, plummeted 63 points, or 3.11%, to 1979.

"On a global basis there's no way in denying it -- multiples look extremely elevated, but also if you're trying to take a long-term view, while all the fundamentals seem right I find it's very hard to buy these stocks," says Jeroen Knol, a fund manager for ABN Amro. "I still have positions

in financials in China but mainly I've been trimming them on the way with every new high."

Shares in

China Life Insurance

(LFC) - Get China Life Insurance Company Limited American Depositary Shares Report

lost 3.93% in Hong Kong, to HK$45.25, while in Shanghai the shares sank 6.5%, to 61.23 yuan. Other financials fared similarly.

HSBC Holdings


lost 1.93%, to HK$142.40, while


lost 5.7%, to HK$5.62.

On other Asian financials, Japanese bank

Mitsubishi UFJ

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dived 3.2%, to 966 yen, while Korean

Kookmin Bank

(KB) - Get KB Financial Group Inc Report

slipped 2.34%, to 66,900 won.

Chinese property stocks, which have led a recent rally in the region after rate cutting by the U.S.

Federal Reserve

, also suffered the bloodbath.

Cheung Kong Holdings


fell 2.34%, to HK$142.10, while

Sun Hung Kai Properties


lost 3.01%, to HK$12.26, and

Hutchison Whampoa


shed 3.53%, to HK$86.15.

In telecoms,

China Mobile

(CHL) - Get China Mobile Ltd. Report

lost 3.8%, to HK$137.90,

China Netcom

(CN) - Get Xtrackers MSCI All China Equity ETF Report

fell back 2.9%, to HK$21.95, and

China Unicom

(CHU) - Get China Unicom (Hong Kong) Ltd. Report

lost 1.7%, to HK$16.16.

In Japan, exports were hit hard, as the yen soared to its highest level in nearly 18 months. The yen was trading at 112.59 yen vs. dollars in Asian trading, up from yesterday's 113.95.

That's great news for the

Currencyshares Japanese Yen Trust

(FXY) - Get Invesco CurrencyShares Japanese Yen Trust Report

ETF, which has been gaining this week as the yen has refused to slide vs. global currencies and the yen carry trade has been out of favor with Asian hedge funds.


(SNE) - Get Sony Corp. Report

lost 2.35%, to 5,390 yen, while


(CAJ) - Get Canon Inc. American Depositary Shares Report

lost 1.04%, to 5,660 yen, and


(NTDOY) - Get Nintendo Co. Ltd ADR Report

plunged 5.5%, to 63,800 yen.

Machine orders in Japan, which is a widely-used proxy for investment in the country, fell by 7.6% in September on the month, much weaker than the 1.5% decline expected by analysts.

This signals that the Bank of Japan may hold off raising Japanese interest rates even in the first quarter of 2008, as many widely expected, say regional economists.

This would be a negative for the yen, and may mean funds begin to start borrowing from the Bank of Japan again by the end of the year. That would also be a plus for Chinese shares, which have traditionally benefited from speculators using cheap Japanese debt to buy in Hong Kong. Lending in Japan rose 1.4% on the year last month, its highest rise in four months.

Still, ABN Amro's Knol says that valuations, particularly in Chinese financials, have risen to a level where he is uncomfortable buying, and that unlike many Hong Kong money managers, he is not looking for a fall in the indices to prompt a buying opportunity.

"There is so much interest in investing in these stocks domestically, so your multiples have gone through the roof -- it scares me a bit," he says.

"You know

banks in China have never been through a credit cycle so you don't know how disciplined they have been with underwriting risk. I'm not looking for near-term downswing so I'm just trimming a little here and there," he adds.

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at

. He lives in New York.