Japan’s Topix Drops Most Since February 2014 on China Stock Rout

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Japanese stocks fell, with the Topix index dropping by the most in more than a year, amid concern that China’s equity rout is spreading.

Sumitomo Metal Mining Co., which counts China as its biggest overseas market, slumped 5.4 percent. Mixi Inc., a social networking site operator, tumbled 8.5 percent after announcing a plan to sell shares. Trading company Itochu Corp. fell the most since 2008. Sumitomo Osaka Cement Co. was the only company to gain on the Nikkei 225 Stock Average.

The Topix lost 3.3 percent to 1,582.48 at the close of trading in Tokyo, its biggest decline since Feb. 4, 2014. Just 42 shares rose on the 1,882-member index, with all 33 industry groups dropping. The Nikkei 225 slid 3.1 percent to 19,737.64, falling below 20,000 for the first time since June 18, while the Nikkei Stock Average Volatility Index surged 30 percent, the most since last August.

“Today we’re starting to see Japan being dragged down and people worry about how the Chinese economy would effect Japan,” Alex Wong, Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about $129 million, said by phone. “Gradually this will drag other markets lower because the magnitude of a China crisis would be far bigger than anything happening in Greece.”

China is suffering its biggest stock rout since 1992 as leveraged investors exit the market despite government measures aimed at stemming losses. Greece has five days to submit a new set of reform proposals needed to earn more bailout aid and bring its economy back from the brink. European Commission President Jean-Claude Juncker said a scenario for Greece exiting the euro has been prepared.

Merkel Pessimistic

“We have only a few days left to find a solution,” German Chancellor Angela Merkel told reporters late Tuesday after euro-area leaders met in Brussels. She conceded that she is “not especially optimistic.”

Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency union that was meant to be irreversible and throwing more than a half-century of economic and political integration into reverse.

The latest attempts to stem losses on Chinese markets, which include a wave of companies halting trading in their shares and regulators unveiling measures to prop up the value of small-cap stocks, follow equities purchases by state-directed funds and interest-rate cuts by the central bank in recent weeks.

Bear Market

They have so far failed to convince investors that valuations are cheap enough after a 32 percent drop in the Shanghai Composite from this year’s high on June 12.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong entered a bear market Tuesday, having fallen more than 20 percent from a May high. It slumped another 7 percent Wednesday.

E-mini futures on the Standard & Poor’s 500 Index fell 0.9 percent after the underlying measure rose 0.6 percent on Tuesday. The Stoxx Europe 600 Index fell 1.6 percent.

Japan posted a current account surplus of 1.9 trillion yen in May, wider than the 1.57 trillion yen forecast by economists, data released Wednesday in Tokyo showed.

Sumitomo Metal Mining slumped 5.4 percent. Mitsui Chemicals Inc., which gets about 28 percent of its revenue from Asia, tumbled 7.3 percent for its biggest loss since November 2013. Construction machinery maker Komatsu Ltd. dropped 5.8 percent.

Mixi tumbled 8.5 percent, its biggest drop since Dec. 24. The company plans to raise as much as 20.4 billion yen from selling shares. About 13.3 billion yen will be used to repay debt from previously announced acquisitions.

Itochu plunged 9.2 percent, its biggest decline since December 2008. Shareholders of Hong Kong-based apparel maker Bosideng International Holdings Ltd. rejected a HK$1.55b yen investment plan by Itochu and Citic Securities Co., the Nikkei newspaper reported.

Sumitomo Osaka Cement gained 1.6 percent, the only Nikkei 225 stock to advance.

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