KUALA LUMPUR: Key Asian markets generally declined on Friday, following Standard & Poor’s chop on Spain’s sovereign credit rating to AA-minus from AA due to a downgraded outlook for the country’s banking sector.

The benchmark FBM KLCI closed lower by 0.17% to 1442.43, Tokyo’s Nikkei 225 was down 0.85% to 8,747.96 while Hong Kong’s Hang Seng Index dipped 1.36% to 18,501.79 and Shanghai’s A share index was 0.3% lower at 2,431.37.

However, Singapore’s Straits Times Index was 0.37% higher at 2,744.17 and South Korea’s Kospi Index also rose 0.67% to 1,835.40. Research analysts said the credit-rating downgrade of Spain had been expected by financial markets, and the decline in investor sentiment was due to other factors such as China’s weakened export growth in September and a less robust outlook for corporate earnings in the United States.

ECM Libra Investment Research head Bernard Ching said the credit-rating downgrade of Spain had been overplayed by the media.

“There are concerns over the slowdown in China’s export growth, and financial markets will still be mainly affected by key decisions to be made by European authorities over the next two months concerning the eurozone debt crisis,” he said.

Ching noted that the macroeconomic outlook was still uncertain, with a best-case scenario of the United States and Europe seeing below-trend economic growth in the long term.

“The worst-case scenario is a mishandling of the eurozone debt crisis which could result in a double-dip recession.

“Our year-end target for the FBM KLCI is 1,450 points with a volatile outlook in the near-term,” said Ching.

OSK Research head Chris Eng pointed out that the bearish investor sentiment was also due to bad news such as the drop in the third-quarter net profit of JPMorgan Chase & Co, the second-largest US bank.

“The FBM KLCI could potentially drop below 1,300 points before the year-end. We will recommend investors to buy in when that happens. Our fair value for the FBM KLCI next year is 1,466 points,” said Eng.

HwangDBS Investment Management Bhd chief investment officer David Ng also said the credit-rating downgrade of Spain was not the main reason for the general decline in Asian financial markets on Friday.

“However, it serves to highlight the precarious fiscal position of some of the European sovereigns. China’s export and low trade surplus were also below expectations, and are signs of slower global growth. Moreover, China’s September Consumer Price Index of above 6.1% also means that the much hoped-for easing by the Chinese authorities will not happen soon,” said Ng.

Ng said the general decline in Asian financial markets was due to the sharp run-up over the past week, which led to “some profit-taking activity and selling into strength.”

“Our near-term view is to be cautious as the fundamental picture has not improved.

Growth and earnings will continue to decline as the weak developed markets will inevitably lead to a slowdown in Asian economic activity as well.”

On the recent rebound in Asian stocks, Ng said it was not foreseen to be sustainable.

“This market volatility is not unusual and is similar to 2008 – the subprime crisis in the United States and Malaysia’s general election. In 2008, the market fell 29% from peak to trough which lasted for three months. Subsequently, it rebounded 10% in 1½ months before plunging 36% in the next four months.”

He noted that trading volumes on the local bourse had waxed and waned, which implied that investors were generally cautious.

“Additionally, an election announcement in the next couple of months may see investors pricing in a political risk premium which could send the market lower,” said Ng.