Japan Stocks Fall on China Manufacturing; Honda Slumps

Japanese stocks fell, with the Nikkei 225 Stock Average declining the first time in five days, after China’s manufacturing teetered on the edge of contraction in July and as companies from Honda Motor Co. and Komatsu Ltd. missed profit estimates.

Komatsu, which gets about 14 percent of sales from China, sank 7.1 percent after the world’s second-biggest maker of construction equipment cut its annual profit forecast. Honda, Japan’s third-largest carmaker by sales, slipped 5.7 percent as it joined Nissan Motor Co. in reporting earnings that trailed estimates. Nomura Holdings Inc. slid 2.2 percent as Japan’s No. 1 brokerage faces penalties after staff leaked information on at least three share sales in 2010.

“This quarter’s earnings have shown that Japanese exporters are badly affected by the slowdown in China, the recession in Europe and the yen’s appreciation,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Given that the Chinese economy hasn’t bottomed yet, next quarter’s earnings could be even worse and share prices may keep sliding. It’s difficult to see a recovery by the end of the year.”

The Nikkei 225 dropped 0.6 percent to 8,641.85 at the close, with almost three shares falling for each that rose. The broader Topix Index lost 0.9 percent to 729.78. Shares pared losses in the final hour of trading after Italian Prime Minister Mario Monti said his nation wouldn’t need a bailout. Both gauges rallied in the past four days on optimism European Central Bank President Mario Draghi will announce measures to combat the sovereign-debt crisis when the ECB meets tomorrow.

Investors Waiting

Futures on the Standard & Poor’s 500 Index were little changed today. The gauge dropped 0.4 percent in New York yesterday as economists surveyed by Bloomberg News forecast the Federal Reserve may forgo announcing a third round of large-scale asset purchases today, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt.

“Investors have been in wait-and-see mode for the last two days ahead of key central bank announcements and that will continue today,” said Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney.

The Topix lost 16 percent since this year’s peak on March 27, leaving shares on the gauge trading at 0.9 times book value, compared with 2.2 times for the S&P 500 and 1.4 times for the Europe Stoxx 600 Index. A number less than one means that companies can be bought for less than value of their assets.

Companies that export to China fell as government data showed the nation’s Purchasing Managers’ Index unexpectedly fell to 50.1 in July from 50.2 in June. That was the weakest reading in eight months and compares with the 50.5 median estimate in a Bloomberg survey. A separate report by HSBC Holdings Plc and Markit Economics showed the manufacturing PMI at 49.3 last month. A reading below 50 indicates contraction.

Biggest Decline

Komatsu sank 7.1 percent to 1,633 yen. The company predicted net income for the year ending March 31 will be 157 billion yen ($2 billion), down from a 190 billion yen forecast made in April, amid slowing demand in China and Indonesia for construction equipment.

Sumitomo Heavy Industries Ltd., a maker of ships and construction machinery that gets about 13 percent of sales from China, tumbled 15 percent to 270 yen, the biggest decline on the Nikkei 225. The company forecast full-year net income of 16.5 billion yen, missing the 22.5 billion yen average estimate of 12 analysts.

About 50 percent of the 184 companies on the Topix that have reported quarterly earnings since the start of last month and for which forecasts are available have missed expectations, according to data compiled by Bloomberg News.

Honda Drops

Honda declined 5.7 percent to 2,405 yen. The automaker reported first-quarter net income of 131.7 billion yen, missing the 150.7 billion yen average estimate of seven analysts compiled by Bloomberg, as the yen strengthened and amid increased marketing spending.

Nomura dropped 2.2 percent to 272 yen. The Securities and Exchange Surveillance Commission, which is the investigative arm of Japan’s Financial Services Agency, said it recommended that the regulator take unspecified disciplinary action against Nomura following a probe into insider trading activities at the brokerage.

Olympus Corp. dropped 6.8 percent to 1,380 yen as the world’s largest maker of endoscopes said it uncovered “irregularities” at a doctor-training program in Brazil that may have violated U.S. law.

Among stocks that gained, Panasonic Corp. climbed 7 percent to 584 yen after the consumer electronics maker posted earnings that beat estimates. First-quarter net income rose to 12.81 billion yen, compared with a 30.4 billion-yen net loss a year earlier and the 9.2 billion-yen average of three analysts’ estimates compiled by Bloomberg News.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE