Japanese Stocks Follow Global Equities Lower Amid Chinese Rout

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Japanese stocks fell as Chinese markets extended a rout that drove global equities lower and damped investor demand for firms that rely on China for sales.

Murata Manufacturing Co., an electronics maker that gets 57 percent of sales from China and Taiwan, lost 1.4 percent. Sumitomo Metal Mining Co. dropped 2.4 percent after a broker warned Chinese demand for steel may have peaked. Nitto Denko Corp. sank 4.1 percent after the Nikkei newspaper forecast first-quarter operating profit will be below analyst estimates. Japan Exchange Group Inc. jumped 3.4 percent after operating profit surged.

The Topix index lost 0.5 percent to 1,629.46 at the close in Tokyo. Shares pared losses of as much as 1.6 percent after the shares in China briefly entered positive territory in the morning, before resuming declines in the afternoon. The Nikkei 225 Stock Average slipped 0.1 percent to 20,328.89. The Shanghai Composite Index was down for a second day after an 8.5 percent slump on Monday triggered a sell-off in global shares and extended a slump in commodity markets.

“Foreign investors command a large share of the Japanese stocks market, and when the environment in China sours like this, they tend to” dump Japanese shares in tandem with Chinese stocks, said Seiichiro Iwamoto, who helps oversee the equivalent of $37 billion at Mizuho Asset Management Co. in Tokyo. “While we don’t concern ourselves with the day-to-day movements and prefer to focus on the domestic economic recovery, we’ll keep an eye out on the earnings results of firms with huge exposure to China.”

China Rout

Monday’s rout, which was the biggest crash in Chinese shares in eight years, led equities lower worldwide and selling spread to the dollar as the turmoil bolstered speculation that the Federal Reserve will keep U.S. interest rates lower for longer. The yen traded 123.48 per dollar after strengthening on Monday by the most against the greenback since July 8, when the previous rout in Chinese markets abated.

Companies that rely on China for sales fell. Murata dropped 1.4 percent, while Komatsu Ltd, which competes in the Chinese market for construction equipment, fell 2.7 percent.

The decline in Chinese shares bolstered concern that demand for raw materials will slip in the world’s second-biggest economy. The Bloomberg Commodity Index fell to a 13-year low Monday, while oil extended declines in a bear market. Rising Iraqi exports and a rebound in U.S. drilling also weighed on sentiment.

Chinese Demand

Sumitomo Metal dropped 2.4 percent after Credit Suisse Group AG said in a report that demand from China for crude steel may have peaked. The broker said this would have a “clear adverse impact” on Japanese steel exports.

Nitto Denko sank 4.1 percent after the Nikkei forecast operating profit in the first quarter would be 23 billion yen. Analyst on average are expecting 24.5 billion, according to estimates compiled by Bloomberg. The electronic components-maker will report earnings on July 31.

Japan Exchange jumped 3.4 percent after first-quarter operating profit rose 38 percent as turnover at the bourse increased. The company said it will conduct a 2-for-1 stock split effective Oct. 1.

Futures on the Standard & Poor’s 500 Index rose 0.5 percent after the underlying U.S. measure lost 0.6 percent on Monday. The Stoxx Europe 600 Index slumped 2.2 percent.

“The huge declines in Chinese share prices caused market sentiment to wither and triggered risk-off on a global scale,” said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo.

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