TOKYO, Sept 24: The Nikkei share average fell to a one-week low on Monday, as a firmer yen added to woes for automakers and other exporters, which have been under pressure from the territorial dispute between Japan and China.
Concerns about global growth weighed on the market even though major central banks have launched stimulus measures to bolster their economies. Some analysts now worry that the new round of stimulus from the Federal Reserve may suggest that the U.S. Economy is in worse shape than many had feared.
Struggling chipmaker Renesas Electronics Corp was untraded with a glut of buy orders after two sources said a Japanese government fund was part of a consortium including Toyota Motor Corp considering a bailout of the company, countering a bid by private equity firm KKR.
Renesas was notionally quoted at 336 yen, up 31 percent from Friday’s close of 256 yen.
The Nikkei dropped 0.7 percent to 9,050.35, supported by the 200-day moving average at 9,016.77, while the Nikkei China 50, made of Japanese companies with significant exposure to world’s second largest economy, shed 1.3 percent by the midday break
‘People are rather cautious,’ a trader at a foreign bank said. ‘There is a lot of media coverage on the China-Japan dispute. That’s also playing into it.’
‘In 2005 (when the last major dispute erupted), the sell-off actually came in the second week, not the first week. People are just worried about history repeating itself and this thing seems a little bit more serious,’ he said.
Among exporters, Canon Inc shed 4.1 percent, while automakers Toyota Motor Corp, Nissan Motor Co and Honda Motor Co lost between 1.6 and 2.3 percent.
The yen was trading at 78.085 yen to the dollar on Monday, up from Friday’s low of 78.379.
Adding to the gloom, Bank of America Merrill Lynch said Japanese carmakers saw a 90 percent drop in showroom traffic and a 60 percent fall sales in the southern Chinese Guangdong province, the largest market for Japanese brands.
‘Dealers believe the current negative sentiment on Japanese-branded cars could be longer than the previous island dispute, as Japanese-branded cars’ promotional campaigns and TV commercials have been temporarily suspended,’ the brokerage said in a note.
‘Some customers are being instructed not to buy Japanese cars to avoid some difficulties – for e.G., some gasoline stands are refusing to supply fuel to Japanese-branded vehicles.’
Construction machinery makers Komatsu Ltd and Hitachi Construction Machinery Co Ltd fell 2 and 1.6 percent, respectively after U.S. Rival Caterpillar Inc’s reported a 13 percent sales increase for the June-through-August period, slightly down from the 14 percent increase for the May-through-July period.
DEFENSIVES SWITCHING
However, investors switched into defensive stocks, which have a relatively lower correlation to the health of the global economy, supporting the broader market. The telecommunications sector rose 1 percent and drugmakers gained 0.4 percent.
‘Nine thousand is a reasonably important technical level. Our flow today is defensive … Beta (cyclical stocks which tend to have high volatility) adjust is pretty heavy to the sellside,’ another trader said.
The broader Topix index dipped 0.5 percent to 752.54 in light volume, with 41 percent of its full daily average for the past 90 days.
The Nikkei is up 7 percent so far this year, underperforming a 16.1 percent rise in the U.S. S&P 500 and a 12.8 percent gain in the pan-European STOXX Europe 600 index.
Japanese equities now have a similar valuation to European shares, with a 12-month forward price-to-earnings ratio of 11.1, versus STOXX Europe 600’s 11 and S&P 500’s 12.9, according to Thomson Reuters Datastream.
(agencies)
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