Asian stocks sank, with the regional benchmark index headed for the biggest drop since September 2011, as Japanese shares plummeted after preliminary China manufacturing data unexpectedly signaled a contraction and the yen strengthened.
Japan’s Nikkei 225 (NKY) Stock Average and the broader Topix Index both fell more than 6 percent, the most since the aftermath of the 2011 earthquake, and futures trading in Osaka was suspended. Every Asian market outside Sri Lanka retreated after Federal Reserve Chairman Ben S. Bernanke yesterday said a premature withdrawal of quantitative easing would put the U.S. economic recovery at risk.
The MSCI Asia Pacific Index declined 3.4 percent to 138.59 as of 6:28 p.m. in Tokyo, with about 12 shares falling for each that rose. The measure rose 11 percent this year through yesterday as Japanese shares surged amid record stimulus by the Bank of Japan and signs of improvement in the U.S. economy.
“The market has been looking for an excuse for a correction,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which oversees $126 billion. “Bernanke’s comments and China’s PMI data provided the trigger for a sell-off. Technically, Japanese shares have been overbought and were vulnerable for a correction.”
Futures trading in Osaka was halted at 14,780 yen at 2:28 p.m. in Tokyo as circuit-breakers were triggered, Yoshifumi Hanatani, an official at the Osaka Exchange, said by phone. It is the first time trading of the contracts have been halted since March 15, 2011, in the immediate aftermath of Japan’s earthquake, tsunami and nuclear disaster. The contracts retreated 1.3 percent after markets shut, signaling further declines tomorrow.
Japan’s Nikkei 225 plunged 7.3 percent and Topix slumped 6.9 percent, their biggest daily drop since March 15, 2011. Financial companies led the decline as every stock in the Nikkei 225 retreated for the first since April 2005. Both gauges were up almost 40 percent this year through today as the Bank of Japan stepped up efforts to end deflation.
Former Ministry of Finance official Eisuke Sakakibara predicted a drop last week. Japanese equities have risen “too much, too fast,” particularly financial stocks, and need “some kind of correction” before they can resume their climb, Sakakibara, known as known as “Mr. Yen” for his efforts to influence exchange rates in the late 1990s, said in a Bloomberg interview on May 15. The BOJ’s unprecedented stimulus is showing signs of success, he said.
The 14-day relative strength index, a measure of trading momentum, held above 70 for both Japanese gauges for the previous nine days. That level is considered by some traders as a signal to sell as the market has risen too fast.
The Nikkei Volatility Index jumped 58 percent to 43.74, the biggest advance since March 2011, according to data compiled by Bloomberg. The 50-day volatility for the Topix climbed to 28.83, the highest since May 2011, the data showed.
“There’s a lot of profit-taking going on,” said Tomomi Yamashita, a fund manager who helps oversee the equivalent of $5 billion at Shinkin Asset Management Co. in Tokyo. “When volatility is high, investors want to take off risk.”
Hong Kong’s Hang Seng Index (HSI) dropped 2.5 percent while China’s Shanghai Composite Index fell 1.2 percent. South Korea’s Kospi Index (KOSPI) decreased 1.2 percent. Australia’s S&P/ASX 200 Index slid 2 percent, while New Zealand’s NZX 50 Index lost 0.5 percent. Taiwan’s Taiex Index retreated 1.9 percent.
China’s manufacturing is contracting in May for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter. The preliminary reading of 49.6 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with a final 50.4 for April. The number was also below the 50.4 median estimate in a Bloomberg News survey of 13 analysts. A reading below 50 indicates contraction.
Futures on the Standard & Poor’s 500 Index slipped 1.1 percent. The gauge yesterday fell 0.8 percent, reversing an earlier 1.1 percent advance, as Bernanke said the central bank could “step down” the pace of asset purchases if the labor market continues to improve.
“Bernanke is making it very clear to markets that at some point they will be likely to reduce the level of bond purchases and that’s an important point for the market to digest,” said Angus Gluskie, managing director at Sydney-based White Funds Management, which oversees more than $350 million. “He’s saying we’re going to wind this down at some point, but not with the economy the way it is.”
Exporters dropped. Toyota Motor Corp. (7203), the world’s largest automaker, slipped 5.1 percent to 6,290 yen. Canon Inc., the world’s biggest camera maker, sank 3.9 percent to 3,735 yen. Li & Fung Ltd. (494), a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., declined 4.4 percent to HK$10.88 in Hong Kong.
Japanese developers and lenders dropped as bond yields increased. Mitsubishi Estate Co., Japan’s biggest developer by market value, sank 9.3 percent to 2,603 yen. Mitsubishi UFJ Financial Group Inc., the nation’s largest publicly traded lender, plunged 9.3 percent to 634 yen.
Raw-material producers declined on concern demand for commodities in China will weaken amid signs growth in the world’s second-biggest economy is slowing.
Jiangxi Copper Co., China’s biggest producer of the metal, slid 2.6 percent to HK$15.52 in Hong Kong. Aluminum Corp. of China Ltd., the nation’s biggest producer of the lightweight metal, sank 2.8 percent to HK$3.14. Cnooc Ltd., China’s largest offshore oil producer, fell 2.5 percent to HK$14.06.
ComfortDelgro Corp. slumped 12 percent to S$1.925. Singapore Labour Foundation raised S$329.8 million ($260 million) selling 170 million shares at S$1.94 apiece, 11 percent lower than yesterday’s closing price, according to terms for the deal obtained by Bloomberg.
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