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Asia's Stocks Pull Back

The Hang Seng is an exception.

Asian investors remained cautious Wednesday as they awaited the results of the U.S.

Federal Reserve's

beige book report due later today, and markets were for the most part lower.

Among the major indices, South Korea's Kospi was the biggest decliner, sliding 25 points, or 1.35%, to 1834. Japan's Nikkei also fell, ending down 69 points, or 0.45%, to 15,153.

In China, the Shanghai Composite Index slipped 1.2%, to 4,803, while the Hang Seng bucked the selling trend, closing up 161 points, or 0.6%, at 27,371.

"Markets have now come down 15% to 20%

in Hong Kong and China over the last two months or so, but the declines are not super dramatic. The froth of the market has come off, and that's not a bad thing," says Ajay Dayal, a buy-side emerging markets product specialist for ABN Amro.

Dayal points out that despite recent drops, companies in China have grown earnings by 25% to 30% this year, while those in Hong Kong have expanded profits by around 20%, making lower valuations increasingly attractive to local investors as there has been little change in the fundamentals.

Even using price-to-earnings-to-growth ratios, equities still look relatively attractive, he says. "In the event of a U.S. slowdown, there's obviously going to be some companies where earnings are not as strong as expected, but we really haven't seen that coming through," adds Dayal.

In Hong Kong, telecoms gained broadly, with

China Mobile

(CHL) - Get China Mobile Ltd. Report

rising 1.36% to HK$134.50, and

China Unicom

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

climbing 1.44% to HK$15.50. The much smaller rival

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China Netcom

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

soared 6.34% to HK$22.65 on local bargain-hunting.

Financial stocks traded lower.

China Life Insurance

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

fell 0.12% to HK$39.95, while

HSBC Holdings


lost 1% to HK$129.60.

As for property stocks,

Sun Hung Kai Properties


fell 0.8% to HK$9.90, while

Hutchison Whampoa


also declined, losing 0.35% to HK$86.45.

Cheung Kong Holdings


rose by 1.4%, to HK$139.90, after the company announced it had won approval for development of a 146,250-square foot residential development project in Tsueng Kwan O in Hong Kong.

The area, known locally as "Junk Bay," lies near the Chinese border in the New Territories, and has been popular among developers of luxury apartments this year.

Chinese commodity stocks were mixed. In Hong Kong trading,


(PTR) - Get PetroChina Company Limited Report

shed 1.09% to HK$14.50, and hit a new intraday low in Shanghai of 31.90 yuan, before clawing back to finish down 1.23% at 32.15 yuan. Also in China,

Sinopec Shanghai Petrochemical

(SHI) - Get SINOPEC Shangai Petrochemical Company Ltd. Report

finished flat, at 14.76 yuan, while

Aluminum Corp. of China

(ACH) - Get Aluminum Corporation of China Limited American Depositary Shares Report

jumped 2.23% to 37.63 yuan.

The yuan broke a four-day rise against the dollar, falling to 7.3952 vs. Tuesday's price of 7.3917, as China's Premier Wen Jiaobao restated his policy of letting the currency appreciate "gradually," according to local journalists in Beijing.

In Japan,


(SNE) - Get Sony Corp. Report

continued to rise after a cash infusion from

Dubai International Capital

on Monday, gaining 3.3% to 5,490 yen.


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

also jumped in the green, by 1.24% to 5,680 yen, and


(NTDOY) - Get Nintendo Co. Ltd ADR Report

rose 0.81% to 62,200 yen.

Economic data were stronger than expected, with October retail sales up 0.8% on the year vs. analysts expectations of a 0.7% rise. That's Japan's third consecutive monthly year-on-year increase, and the fastest retail sales have grown since August 2006.

Higher spending on vehicles and fuel led the improvement. Many now see it likely the Bank of Japan will raise interest rates in the first quarter of next year.

In Korea, steelmaker


(PKX) - Get POSCO Holdings Inc. American Depositary Shares (Each representing 1/4th of a share of) Report

slipped 2.44% to 560,000 won, on fears of decreased demand from China in 2008 for the commodity.

Still, industrial production shows little signs of being affected by a potential slowdown in the U.S. economy, with production rising 17.8% on the year in October vs. expectations of 12.5%. Many strategists now expect shares in exporters to respond well to the news in December.

ABN Amro's Dayal says that despite some pessimism by money managers in the West, most regional economists continue to forecast healthy growth in the Asian region, and in particular in China.

"For the U.K. and New York investor they are looking at a more relative basis. They are asking 'what can go wrong?' rather than 'what can go right?' If you talk to most economists, though, they say the growth is highly sustainable," says Dayal.

In India, the Bombay Sensitive Index fell in line with the other Asian markets, by 1% to 18,938.

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.