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Japan Shares Fall Before Elections on Non-Ferrous Metals

Japanese shares fell ahead of elections this weekend, halting a four-day advance in the Topix (TPX) index, as non-ferrous metal producers led declines among the measure’s 33 industry groups.

Cable-maker Sumitomo Electric Industries Ltd. (5802), which accounts for 31 percent of a Topix gauge tracking non-ferrous metals companies, lost 3.3 percent as Japan’s copper-wire and cable shipments fell. Dainippon Screen Manufacturing Co. (7735) lost 5.1 percent after the chip-equipment maker’s No. 1 customer cut its sales forecast. Mitsui O.S.K. Lines Ltd. (9104), the world’s largest merchant-ship operator, slid 1.4 percent. Consumer lender Orix Corp. advanced 5.2 percent.

The Topix slid 0.8 percent to 1,211.98 at the close in Tokyo, after rising as much as 0.8 percent. Volume was 20 percent above the 30-day average. The gauge added 0.8 percent this week. The Nikkei 225 Stock Average lost 1.5 percent to 14,589.91. Futures on the measure slid 1 percent in Osaka after falling as much as 2.6 percent.

“There’s some profit-taking ahead of elections,” said Seiichiro Iwamoto, who helps oversee the equivalent of $33 billion at Mizuho Asset Management Co. “Abe winning the upper house is already priced in and there’s a feeling that all the good news is out already. Shares should start rising again once we see good earnings results.”

After plunging as much as 18 percent from a May 22 high, the Topix rebounded amid optimism Prime Minister Shinzo Abe will push through economic reforms following the polls. The gauge rose for a fifth week, the biggest such advance since April 2009 and the longest winning streak since February.

Profits at Topix companies will rise 94 percent compared to the previous quarter, according to analyst estimates compiled by Bloomberg. Full-year earnings are projected to jump 57 percent, the data shows.

Weekend Elections

A victory in the elections would end a split parliament by giving Abe’s coalition control of both chambers. His Liberal Democratic Party would have the strongest mandate since 2007, enabling it to carry out a program of monetary easing, fiscal stimulus and structural reform known as Abenomics.

The LDP and coalition partner New Komeito are on track to win more than enough seats to secure a majority, according to a poll published in the Nikkei newspaper on July 17.

“The speed at which the government will enact policies is going to impact the buying of Japanese stocks by foreign investors,” said Juichi Wako, a Tokyo-based senior strategist at Nomura Securities Co., the nation’s biggest brokerage. “They are going to be focusing on whether they can pass legislation in the extraordinary parliamentary sessions in August.”

Futures Tumble

Nikkei 225 futures traded in Osaka tumbled as much as 2.6 percent in 12 minutes this morning, triggering a sell-off in the cash-equities markets.

“Futures falling shows there’s some fast money taking profit and closing positions ahead of the weekend elections,” saidNader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages more than $130 billion. “The market is expecting a landslide victory, and anything less than that could be a short-term disappointment so some investors are taking profits now.”

Japan’s currency strengthened 0.4 percent against the dollar today after weakening 0.8 percent yesterday. The yen is the worst-performing major currency since mid-November.

Dainippon Screen, which makes machines that clean semiconductor wafers, declined 5.1 percent to 574 yen for its biggest loss in a month. Taiwan Semiconductor Manufacturing Co. (2330), the world’s largest contract manufacturer of chips, forecast sales that trailed estimates. TSMC accounts for 10 percent of the Kyoto, western Japan-based company’s revenue, according to data compiled by Bloomberg.

Advantest Slides

Tokyo Electron Ltd., which also counts TSMC as a customer, sank 5.7 percent to 4,790 yen. Advantest Corp. (6857), the world’s biggest maker of chip-manufacturing equipment, slumped 7 percent after its rating was cut to neutral at Nomura Holdings Inc.

Sumitomo Electric fell 3.3 percent to 1,317 yen, the most since June 21, as the Topix Nonferrous Metals Index slumped 2.4 percent. Japan’s copper-wire and cable shipments decreased for the sixth time in seven months, according to a statement by the Japanese Electric Wire and Cable Maker’s Association today.

Mitsui O.S.K. Lines slid 1.4 percent to 414 yen after falling as much as 3.1 percent.

Orix, which accounts for 41 percent of the Topix gauge tracking consumer lenders, jumped 5.2 percent to 1,547 yen, leading the sector to the biggest gain on the Topix. Hitachi Capital Corp., which also provides consumer-financing services, added 1.8 percent to 2,322 yen.

Technical Indicators

Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The measure added 0.5 percent yesterday as earnings at companies from Morgan Stanley to UnitedHealth Group Inc. beat estimates and initial jobless claims dropped to the lowest since May.

The Topix’s Relative Strength Index, which tracks the velocity of price changes, was at 63.52 today, near the 70 threshold some traders see as a sign that stocks may be poised to fall. The 25-day Toraku Index, which compares the numbers of advancing and declining stocks on the gauge, reached 136.85 yesterday, above the 130 level some investors say signals stocks may decline.

The Topix traded at 1.30 times book value today, compared with 2.49 for the S&P 500 and 1.69 for the Stoxx Europe 600 Index yesterday. The gauge’s 30-day historic volatility was at 29.60 today, down 32 percent from its July 2 high of 43.22.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Masahiro Watanabe in Tokyo at mwatanabe47@bloomberg.net

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

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