Japan’s Topix Index (TPX) entered a bear market, with stocks plunging to a level not seen since 1983 as Europe’s debt crisis spurs a global flight from risk assets, driving up the yen and threatening exports.
The country’s broadest equities gauge slumped 1.9 percent to 695.51 yesterday, the lowest close since Dec. 13, 1983, amid concern the crisis will derail the global economy as Japan struggles with the legacy of last year’s natural and nuclear disasters. The index has lost more than 20 percent from this year’s high on March 27, meeting the definition of a bear market. Sony Corp. (6758) fell below 1,000 yen for the first time since 1980, when it introduced its iconic Walkman in the U.S.
Brokerages, steelmakers and insurance companies led declines among the Topix’s 33 industry groups. The average price of stocks on the gauge has slid to 0.82 times net assets, lower than during the 2008-09 financial crisis. Shares on the Standard & Poor’s 500 Index (SPX) traded at 2.02 times on June 1, while those on the Stoxx Europe 600 Index (SXXP) were valued at 1.29.
“Investors are worried about worst-case scenarios in Europe and even though stocks are looking really cheap, nobody is willing to buy,” said Gentoku Kiyokawa, Tokyo-based head of the Japanese investment management division at BNP Paribas Investment Partners, which oversees the equivalent of $610 billion. “Markets are pricing in the risk Europe’s crisis hits growth in China and the U.S. and leads to another Great Depression.”
Before Bubble, Deflation
In 1983, the Topix was in the sixth year of a 12-year advance that ended when an asset bubble burst, ushering in an era of deflation and economic stagnation. The gauge has lost 76 percent since peaking on Dec. 18, 1989.
The Topix entered a bear market for the second time since last year’s disasters as concern that Europe’s debt crisis is spreading outweighed improved earnings forecasts. Investors await an election on June 17 that may determine whether Greece stays in the euro, while policy makers remain divided about how to keep the crisis from spreading to Spain and Italy.
“What’s fueling the panic in the market is the gridlock in Europe,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd., which has $422 billion in assets. “The recession could spread globally from Europe.”
Japanese exporters also fell after the yen on June 1 touched the highest level against the dollar since Feb. 14, when the Bank of Japan added to its bond purchases. Further monetary easing has failed to weaken the currency.
Sony Below 1,000
Sony, the country’s No. 1 exporter of consumer electronics, slumped 1.7 percent to close yesterday at 996 yen.
Foreign investors have been net sellers of Japanese equities for six consecutive weeks through May 25, the longest such streak since October. They made up 71 percent of Japanese stock transactions in the week ended May 25, according to the Tokyo Stock Exchange.
Short selling in Japan accounted for 32 percent of the total value of shares traded on May 30, the most since June last year, according to the Tokyo Stock Exchange. That compares with a 25 percent average in the past six months.
“Everybody is looking to unload risk assets,” said BNP Paribas’ Kiyokawa. “There’s no use talking about valuations right now because the market isn’t moving on logic.”
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