Japan Stocks Fall After China Factory Gauge Signals Contraction

  • Topix index's October advance was best month since April 2013
  • Yen gained 0.4% against dollar on Friday after BOJ stood pat

Japanese stocks fell, after the Topix index posted its steepest monthly gain since April 2013, as a China factory gauge signaled a third month of contraction. Iron and steel makers led declines.

Kobe Steel Ltd. tumbled 6.5 percent after cutting sales and profit forecasts. Kirin Holdings Co. slumped 5 percent after the brewer lowered its full-year operating-profit outlook. Kawasaki Kisen Kaisha Ltd. plunged 8.8 percent after Credit Suisse Group AG cut its rating on the shipper. Murata Manufacturing Co. rose 4.4 percent after Nomura Holdings Inc. raised its price target on the Apple Inc. supplier, citing better-than-expected quarterly earnings.

The Topix retreated 2 percent to 1,526.97 at the close in Tokyo, capping its biggest loss in two weeks following last month’s 10 percent surge. The Nikkei 225 Stock Average dropped 2.1 percent to 18,683.24 on Monday. The yen rose 0.2 percent to 120.34 per dollar after gaining 0.4 percent on Friday as the Bank of Japan refrained from adding to monetary easing. China’s official purchasing managers’ index -- the first key economic indicator for this quarter -- came in at 49.8 in October, missing economists’ estimates and holding below 50, the line between expansion and contraction.

China’s “various policy measures, which we’ve heard a lot about recently, still weren’t enough to bring the PMI back up to 50, and that suggests the weak trend will continue,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “Although we rallied in October, there wasn’t any change to macro indicators and the gains were mostly driven by easing expectations. If that support begins to falter, stocks will obviously fall.”

China Manufacturing

China’s official non-manufacturing PMI, a barometer of services and construction, fell to 53.1 from 53.4 in September, the weakest since December 2008. Since August, China has announced various support measures including two interest rate cuts and the scrapping of taxes on automobile purchases. Caixin Media and Markit Economics released the results of their private manufacturing survey on Monday, which posted a reading of 48.3 for October, compared with the estimate of 47.6.

The BOJ kept policy unchanged on Friday even as it cut forecasts for growth and inflation. European Central Bank President Mario Draghi, who sparked a rally in global markets when he suggested his bank was primed for further stimulus, said in comments published Saturday that additional easing was still an “open question.” The Federal Reserve said last week a rate increase in December was on the table.

Japan’s factory report showed manufacturing expanded in October at the fastest pace in a year. The Nikkei Japan Manufacturing PMI index rose to 52.4 from 51 in September, marking six months of expansion and the highest reading since October 2014.

Japan GDP

The strong report stands in contrast to expectations that data later this month will show Japan entered a recession last quarter. Economists estimate that gross domestic product shrank an annualized 0.2 percent in the three months through September, the second consecutive quarter of contraction.

Iron and steel producers were the biggest losers among the Topix index’s 33 industry groups after Kobe Steel cut its full-year net income forecast by 20 percent, citing a delayed recovery in the local auto industry and tougher price competition in Asia. Peers Nippon Steel & Sumitomo Metal Corp. and JFE Holdings Inc. each dropped at least 5.5 percent after Deutsche Bank AG cut its investment rating on both firms to hold from buy, and reduced its price targets.

Kirin, Kawasaki Kisen

Kirin tumbled 5 percent after lowering its net income forecast by 13 percent even as quarterly profit nearly tripled. Following the results, Nomura cut its price target on the brewer, citing a poor pricing strategy and struggles at its Brazilian unit.

Kawasaki Kisen plunged 8.8 percent after Credit Suisse cut its rating on the shipper to underperform, citing Friday’s poor earnings results and a lack of positive catalysts. The company on Friday said sluggish markets for the container and dry bulk business were among reasons for lowering its full-year forecasts.

Murata was one of the few standouts of the day, rising 4.4 percent to be the biggest boost to the Topix, after rising demand led the maker of components for smartphones to increase its full-year forecast. Nomura lifted its price target to 22,800 yen from 21,800 yen and maintained its buy rating, saying Murata may beat its new forecast.

Japan Post

E-mini futures on the Standard & Poor’s 500 Index slipped 0.4 percent after the underlying measure fell 0.5 percent on Friday, closing October with an 8.3 percent gain, the best month in four years. The Stoxx Europe 600 Index advanced 8 percent, its biggest monthly rally since July 2009.

Japanese markets are closed on Tuesday for a holiday. The next day sees the listing of Japan Post Holdings Co. and its banking and insurance units, the world’s biggest initial public offering this year and nation’s largest privatization since the 1980s.

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