Japan's Nikkei 225 Rises 7.7% for Biggest Gain Since October 2008

Nikkei 225 Sees Biggest Increase Since 2008
  • Investors buy back in after valuations hit 11-month low
  • Topix surges most since 2011 as all 33 industry groups rise

Japanese stocks soared, with the Nikkei 225 Stock Average staging the steepest advance since the aftermath of the 2008 Lehman Brothers Holdings Inc. bankruptcy, amid speculation a selloff that drove valuations to an 11-month low was overdone.

The Nikkei 225 jumped 7.7 percent to 18,770.51 at the close in Tokyo, its biggest gain since October 2008, to reverse losses on Tuesday that wiped out the gauge’s 2015 advance. The broader Topix index surged 6.4 percent to 1,507.37, the most since March 2011, amid volume 9 percent above the 30-day average. Japanese shares suffered the world’s second-steepest drop through Tuesday since China’s shock yuan devaluation last month, with Shanghai’s equity gauge the only one that fared worse.

“The selloff in Japanese equities has been excessive amid concerns over China’s economic slowdown,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $41 billion “Today’s rally can be sustained once the market’s perception of the Chinese economy improves.”

Nikkei 225's Best Days
Nikkei 225's Best Days

All of the Topix’s 33 industry groups rose, with drug makers and insurers leading the advance. Just 14 of the 1,887 companies on the gauge declined, the fewest since January 1999. The yen traded at 120.44 per dollar, weakening for a third day. U.S. stocks on Tuesday posted the second-biggest increase this year.

The Topix lost 16 percent from from an August peak through Tuesday as concern about China’s economic outlook roiled markets. The yen touched an seven-month high versus the dollar on Aug. 24, the same week that foreigners fled Japanese equities at the fastest pace in at least a decade. Short-selling has accounted for more than 40 percent of trading on the Tokyo Stock Exchange since Sept. 1, the highest proportion since the bourse began keeping daily records in 2008.

Japanese Stock Valuations
Japanese Stock Valuations

“We had fallen so much so quickly that today we’re seeing a reversal of that,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “For now, it’s all up to what happens in China,” adding that he thinks the Shanghai Composite may not fall further.

The Shanghai Composite index, the benchmark Chinese stock measure, rose for a second day Wednesday, adding as much as 2.7 percent. Gains were led by small-company shares amid optimism the government will succeed in shoring up equities after a $5 trillion rout. China will implement stronger fiscal policy to boost its economy, the finance ministry said in a statement posted on its website Tuesday.

Brokerages were among the biggest gainers on the Topix, with Nomura Holdings Inc. soaring 8.7 percent. Fast Retailing Co. jumped 10 percent to be the biggest boost to the Nikkei 225. Fuji Heavy Industries Ltd. surged 9.7 percent after the Nikkei newspaper reported the maker of Subaru cars is considering a dividend increase. Murata Manufacturing Co. rose 9.1 percent, leading Apple Inc. suppliers higher ahead of the unveiling of new iPhone and iPad models.

Earnings Multiples

The Nikkei 225 traded at 16.4 times estimated earnings as of yesterday’s close, the lowest since October, according to data compiled by Bloomberg. The Topix’s ratio was 13.5 times, also the lowest since October.

Short-selling accounted for 41.2 percent of trades on Tokyo’s exchange Tuesday, close to the record 41.6 percent reached last week. Hedge funds that shorted index futures on Tuesday afternoon pushed Japan shares higher Wednesday as they closed out positions, Yoshihisa Okamoto, Tokyo-based head of equity research at Mizuho Asset Management, said by phone.

Shares got a boost after Japanese Prime Minister Shinzo Abe pledged to lower the corporate tax rate by at least 3.3 percentage points next year and “aim to go beyond that if possible.” Japan’s finance ministry estimates its rate is currently the second highest among Group of Seven nations.

Futures on the Standard & Poor’s 500 Index added 1 percent after the underlying gauge surged 2.5 percent on Tuesday.

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