Asian Stocks Pull Back After Solid Start

At the onset, 2013 promised to be a good year for equity investors. Global markets kicked off the year on a positive note, rallying in unison after U.S. lawmakers managed to fend off, albeit temporarily, the much-dreaded fiscal cliff in the world's largest economy.

Most Asian bourses extended their new-year celebrations well into February with upbeat economic data and supportive central-bank policies in major economies boosting confidence. But as the month of March set in, much of that optimism started to taper off, as concerns about China and Europe preponderated.

Save for Japan's Nikkei and Australia's S&P/ASX All Ordinaries, all major indexes in the region erased early gains and dipped into the red on a year-to-date basis. Most of these losses were logged during the month of March.

Yen's Softness Augurs Well for Japanese Exporters
Tokyo's benchmark Nikkei 225 index clocked a robust quarterly gain of 19.27%, which is largely attributable to the yen's weakness. Japan being an export-oriented economy, the yen's recent drop has come as a big relief for Japanese firms. A softer yen not only lowers the price of Japanese products in overseas markets but also boosts export earnings when repatriated into yen.

Prospects of radical monetary easing by the recently elected government have been pushing the Japanese currency lower against major world currencies. The yen has depreciated 8.6% against the dollar and around 5.5% against the euro over the last three months.

China Property Curbs Hit Sentiment
In early March, China announced plans to impose higher mortgage down payments and restrictions on second-home purchases in order to rein in soaring housing prices. The government also called for strict implementation of a capital gains tax on home sales. The news came as a major disappointment for investors, who feared a slowdown in China's real-estate market could hurt global demand for commodities while adversely affecting growth in the world's second-largest economy. Chinese stocks slumped on the heels of the news, pulling down other regional bourses, with the Shanghai Composite wiping out the gains it garnered since the start of the year.

European Worries Resurface
Next to hit investor confidence were renewed fears about stability in the eurozone, which erupted mid-March as international lenders haggled over a radical bailout deal for the debt-mired Mediterranean island of Cyprus. While Cypriot leaders did finally manage to hammer out an agreement, sending global stocks into a relief-rally, these gains proved to be short-lived as investors mulled over the finer details of the bailout.

In return for the 10 billion euro package, Cypriot leaders agreed to restructure the country's second-largest bank, Laiki, and levy a tax on deposits exceeding 100,000 euros. Investors feared other European countries with troubled banking systems would follow suit and impose similar taxes on bank deposits to avoid debt default.

Meanwhile, political uncertainty in Italy--the eurozone's third-largest economy--dragged on after elections in February failed to yield any single party a majority in either house of the parliament. After days of negotiations, center-left leader Pier Luigi Bersani failed to secure support from either Beppe Grillo's Five Star Movement or Silvio Berlusconi's People of Liberty, stoking concerns about the financial implications on the common currency bloc.

Sector-Level Performance
Sector-wise, health-care stocks (+15.84%) were the top performers during the first quarter, followed by Consumer Discretionary (+9.52%) and Financials (+8.67%).

On the flip-side, resources have lagged behind, with the Materials sector posting a loss of 4.55% and the Energy sector down 1.8%. Barring these two, all other sectors have yielded positive returns for the quarter.

Japanese drugmaker Astellas Pharma registered a quarterly gain of 30.58%, while Daiichi Sankyo Co. Ltd is up 36.91%. India's Lupin Ltd. is up a modest 2.4% but Ranbaxy Laboratories slumped 13.11%.

Among exporters, Tokyo-listed car manufacturer Mazda Motor Corp. (MZA) zoomed ahead 61.49% year-to-date, while  Toyota Motor (TM) accelerated 21.35%.

Home entertainment products exporter Nintendo Co. Ltd (NTDOY) posted a quarterly gain of 10.47%, while  Panasonic (PC) rose 25.29%.

In Mumbai, IT services exporter  Infosys (INFY) rose 24.65% during the January-March period, while Tata Consultancy Services and  Wipro (WIT) gained around 25% and 10%, respectively.

Hong Kong-listed export-oriented firms did not fare that well, however. Esprit Holdings (00330) tumbled 13.38% while  Li & Fung Ltd. declined 22% over the quarter.

Among property developers, some firms managed to eke out gains despite the recent rumble in real estate stocks. Hong Kong-listed China Resources Land (01109) added 2.6% for the first quarter while the broader Shenzhen-listed China Vanke is up 20%.

In the resources segment, Australian mining giant  BHP Billiton (BHP) dropped nearly 12% while close-rival  Rio Tinto (RIO) declined around 13.5% during the quarter.

Energy firms, however, held up well-- Woodside Petroleum (WPL) improved 5.7% over the three months, while  Santos Ltd. (STO) clocked a gain of 12%.