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Japan Stocks Decline as Carmakers’ Sales Drop in China

Oct. 10 (Bloomberg) -- Japanese stocks fell, with the Nikkei 225 Stock Average (NKY) capping its biggest two-day loss since July, after carmakers’ sales in China dropped, adding to concern a territorial dispute between the two nations is weighing on corporate earnings.

Toyota Motor Corp. (7203), Asia’s largest carmaker by market value, fell 1.9 percent after reporting its biggest drop in China sales since at least 2008. Kobe Steel Ltd. (5406) paced losses among steelmakers after its target price was cut by Nomura Holdings Inc. (8604) Toshiba Corp. dropped 4.2 percent on a plan to buy up a stake in its nuclear-power unit, Westinghouse Electric Co.

The Nikkei 225 Stock Average dropped 2 percent to 8,596.23 at the close of trading in Tokyo, capping its biggest two-day drop since July 23. The broader Topix Index retreated 1.5 percent to 716.84, with about six stocks falling for each that rose.

“Growth is facing headwinds not only in China, but also everywhere, and the territorial dispute is adding another headache, weighing on the auto sector,” said Kuninobu Takeuchi, Tokyo-based executive portfolio manager at DIAM Co., which oversees about 10 trillion yen ($128 billion). “You had expected a rebound in earnings in the second half of this fiscal year, but now things seem to be going against that hope.”

The Topix slid 1.6 percent this year as a slowdown in the global economy boosted demand for the yen as a haven, weighing on Japanese exporters’ earnings. Policy makers in Asia, the U.S. and Europe have deployed a global wave of stimulus to prop up growth.

BOJ Easing

The Bank of Japan has room to ease policy further, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said yesterday in Tokyo, adding to calls from Japanese politicians for more action by the central bank.

Shares on the Topix trade at about 0.86 times book value, compared with 2.23 for the Standard & Poor’s 500 Index and 1.5 times for the Stoxx Europe 600 Index. A number lower than one means a company can be bought for less than the value of its assets.

Futures on the S&P 500 (SPXL1) were little changed today. The index fell 1 percent in New York yesterday as the IMF cut estimates for global growth. After close of market, Alcoa Inc., the largest U.S. aluminum producer, cut its forecast for global consumption of the material as Chinese economic growth slows.

China Slowdown

“We are clearly seeing the impact of a Chinese slowdown globally and it’s indicated in Alcoa’s numbers,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion. “Equity markets have had a very strong run, so it won’t be surprising if they go through some correction. In a sense, actually a correction will be healthy.”

Yesterday marked the five-year anniversary of the S&P 500’s all-time highest close of 1,565.15. The U.S. equity measure lost more than half its value from October 2007 through March 2009, when equity markets bottomed during the global financial crisis. The gauge recovered to close yesterday 7.9 percent below the record level.

Japanese carmakers extended yesterday’s losses after Toyota, Nissan Motor Co. and Honda Motor Co. reported drops in China sales after rioters torched dealerships and smashed cars in protests sparked by a territorial dispute over a group of islands. Japanese auto brands may lose their market-share lead in the country for the first time since 2005, according to data from the China Passenger Car Association.

Honda dropped 1.1 percent to 2,334 yen, while Nissan rebounded 1.2 percent to 664 yen after sliding as much as 2.6 percent. Toyota retreated 1.9 percent to 2,943 yen, with the stock also declining after the carmaker recalled 7.4 million vehicles due to a faulty window switch.

Steelmakers Fall

Kobe Steel dropped 4.8 percent to 60 yen, leading steelmakers lower, after Nomura cut its target price to 65 yen from 77 yen. Nisshin Steel Holdings Co. lost 6.6 percent to 596 yen, and Kyoei Steel Ltd. declined 4.9 percent to 1,113 yen.

Toshiba fell 4.2 percent to 252 yen as it plans to pay about 125 billion yen to acquire Shaw Group Inc.’s 20 percent stake in Toshiba’s Westinghouse Electric nuclear-power unit.

The Nikkei Stock Average Volatility Index (VNKY) added 1.3 percent to 18.10, indicating traders expect a swing of about 5.2 percent on the benchmark gauge over the next 30 days. Trading volume on the Nikkei 225 was about the same as the 30-day average.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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